German industrial production increased by 0.5% MoM in February, from a sharply downward revised drop of 0.6% in January. On the year, industrial production is down by 1.8%. Production in the manufacturing sector increased by 0.5%, masking sharp declines in the production of consumer goods and strong increases in the production of capital goods. Production in the construction sector fell by 2.7% MoM. Today’s data is not as positive as it looks at first glance. Due to the January downward revisions, industrial production in the first two months of the year was now weaker than in Q4 2012.
After a period of deflating in the second half of last, the German industry has stabilised again. The stabilisation, however, is not automatically followed by a sharp rebound of industrial activity. Recently, there even has been a kind of dichotomy between producers’ expectations and sentiment and actual data. While confidence indicators are still far above their historical averages, actual industrial activity has remained subdued. The inventory reduction of the second half of 2012 came to a halt in the first months of the new year.
To find the main reason for the tempered industrial recovery, a simple glance through a German window during the last months would have been sufficient. It is the weather. The harsh winter weather has not only affected the construction sector but the entire industry. Interestingly, the German economy has been hit much harder from the winter weather than the rest of the Eurozone. Some might consider this a meteorological-inflicted rebalancing.
Looking ahead, evidence is increasing that industrial production should soon join private consumption as an important growth driver in 2013. Production expectations just reached their highest level since April 2012 and new orders were up by 2.3% MoM in February.
The winter has left its marks in Germany. On both the economy and the people. Hopefully, the joys of spring should return soon.