German IP drops in August

Limited slowdown. German industrial production dropped by 0.5% MoM in August, providing further evidence of the gradual slowing of the economy. In annual growth terms, industrial production was up by 0.8%. The drop was equally spread across most sectors. Only the production of energy and consumer goods increased in August. Production in the construction sector saw a drop by 2.8% MoM.

Earlier today, German exports surprised positively and increased by 2.4% MoM in August. As imports only increased by 0.3% MoM, the seasonally-adjusted trade balance widened to 18.3bn euro, from 16.3bn euro in July. As so often, exports to non-European countries were the most important driver. Exports to non-European countries were up by 13% YoY and the share of exports to other Eurozone countries is constantly dropping. In August, only 33% of all German exports went to Eurozone peers.

The available hard data still illustrates a relative crisis-resistance of the German economy. The sharp dop of almost all confidence indicators is not yet reflected in the data. Although a contraction of the economy in Q3 is still possible, strong exports and stable consumption should make any contraction a mild one. Unless, of course, things worsened dramatically in August.

Looking ahead, however, the soft landing of the German economy should continue. The industry’s safety net of low inventories and richly filled order books has become very thin over the summer months. Inventories are still relatively low, at least when compared with the start of earlier recessions. However, the currently widening differences between increasing inventories and dropping orders at hand is similar to the trends observed in 2001 and 2008.

Today’s data illustrate the relative strength of the German economy. However, the data also give the impression that the German industry is in the middle of a clearance sale. A mix of surging exports, dropping orders and declining industrial production does not bode well for the future.