Still alive. German industrial production increased by 1.6% MoM in January, providing first evidence of a tender rebound of the German economy. On the year, industrial production is up by 1.8%. The increase was mainly driven by the production of capital goods, durable consumer goods and the construction sector (+4.3% MoM).
Financial market turmoil, the Eurozone debt crisis and the winter weather have made it a bit more complicated to identify the future path of the German economy. In fact, latest hard economic data often stood in stark contrast to an almost imperturbable optimism by both companies and consumers. While new orders and retail sales disappointed, most confidence indicators actually increased and production expectations just recently returned to last summer’s levels. Have German companies become a bunch of happy-go-luckies and will there soon be a rude awakening or should recent hard data simply be filed away under “statistical noise”?
With today’s industrial production data, a technical recession (i.e. another quarter of economic contraction) can still not entirely be ruled out. January production has only offset the losses of the fourth quarter. Nothing more and nothing less. Moreover, the February freeze will probably also take a toll on the construction sector.
Nevertheless, once the February freeze is behind, there are still enough reasons to expect a rebound of the German economy. With the often-mentioned solid fundamentals with the absence of any significant domestic imbalances; inventory reduction of companies over the last months, wage increases and the US recovery, the German economy should be able to offset the negative impact from higher oil prices and weaker demand from other Eurozone countries.
After two weak months, the German industry is picking up steam again. More is needed to ban recession fears for good.