Thursday, July 8, 2010

At least growth champion?

Spring sprint accelerates. German industrial production increased by 2.6% MoM in May, from 1.2% in April. The increase was driven by the production of intermediate (3.2% MoM) and capital (4.6% MoM) goods. The production of consumer goods increased by 1.7%, while the construction sector showed a first correction after two strong months. Earlier today, German exports had already surged by 9.2% MoM in May, from a 6.3% drop in April.

It is obvious: the industry remains the backbone of the German economy. Even if industrial production was to stagnate in June, it would still have grown by around 5% QoQ. With today’s numbers, an excellent second quarter has further materialised. Fasten your seat belts.

Looking ahead, filling orders books and business expectations back at pre-crisis levels bode well for the second half of the year. Even if the current strong momentum will be hard to sustain. The ongoing investment-led global recovery should support the German export sector in the coming months. In addition to the demand component, the price component is also supporting German exports. German exporters remain one of the biggest beneficiaries of the weaker euro. Since October last year, the real effective exchange rate dropped by 7%. Only the Netherlands and Ireland saw a stronger improvement of their international cost competitiveness positions.

While German consumer confidence probably took a hit yesterday evening and a World champion title is out of reach, the German economy is still a promising candidate in another race: the one of Eurozone growth champion 2010.

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