Wednesday, January 9, 2013

Too little, too late? German IP stabilises in Nov

Industrial stabilisation. After three consecutive months of decline and an accumulated drop of more than 4%, German industrial production finally showed some signs of stabilisation. In November, industrial production increased by a meagre 0.2% MoM, from a 2.0% drop in October. On the year, industrial production is down by 2.9%. The drop was driven by a decline in the production of consumer goods (-2.2% MoM) and energy (-3.3% MoM). The construction sector grew by 1.0%, from -1.6%.

Today’s data is the final piece of evidence of an entire batch of industrial data, showing that the German economy has slipped into contraction in the fourth quarter. Comparing October/November with 3Q, retail sales are down, net exports have turned into a drag on growth and the construction sector has also weakened. It would need an unrealistic economic miracle in December to still avoid the contraction.

Looking ahead, however, strengthening external demand and sound domestic fundamentals should lead the way out of contractionary territory in the first half of this year. The lagged impact of higher wages should offset a slight worsening of the labour market and low interest rates combined with pent-up investment should support domestic demand. At least in Germany, the pass-through of low ECB rates and bond yields to bank lending rates seems to function properly.

All in all, this week’s data have provided more evidence that the German economy should have experienced the worst growth performance in 4Q since the first quarter of 2009.

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