Thursday, February 7, 2013

German IP stabilises in December

Industrial stabilisation continues. German industrial production increased by 0.3% MoM in December, from a downward revised -0.2% MoM in November. On the year, industrial production is still down by 1.1%. The increase was driven by production of consumer goods (+3.9% MoM) and capital goods (+1.9% MoM). Despite the relatively mild December weather, production in the construction sector fell sharply by almost 9% MoM.

Despite today’s slight improvement, industrial production in the last three months of 2012 disappointed and confirms the contraction of the entire economy by around 0.5% QoQ in 4Q12. Nevertheless, even if the headline figure is no reason to become overly enthusiastic, today’s industrial production data indicate that the industrial slowdown has come to an end. In fact, it provides further evidence that the outlook for the German economy has brightened.

Confidence indicators have improved over the last three months and this new optimism is not only wishful thinking. The increase of new orders is again feeding the economy’s industrial growth engine. Moreover, the industrial safety net of filling order books and inventory reductions has improved, boding well for industrial production in the months ahead. Finally, if the lower-risk environment continues, record-low interest rates should support an investment rebound, contributing to growth in 2013.

All in all, this week’s industrial data send two important messages. A good and a bad one: the first contraction of the German economy since 1Q 09 has been confirmed but the rebound has already started.

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