Wednesday, May 8, 2013

German IP points to rebound in 1Q

Signs of life. The German industry is bucking the trend of negative news across the Eurozone. German industrial production increased by 1.2% MoM, from an upwardly revised +0.6% MoM in March. On the year, industrial production is still down by 2.5%. As expected, the construction sector suffered enormously from the harsh winter weather, dropping by 3.1% MoM, after a 1.6% drop in February. Production in all other sectors, however, was up.

The German industry has stabilised further since the turn of the year, even if the rebound is still bumpy. Industrial production excluding the construction sector is now finally above its fourth quarter level. At the same time, however, the construction sector suffered from the harsh winter weather and it is not over, yet. According to the latest European Commission indicators, German construction firms still suffered from the weather in April. The weather-inclined rebound should be delayed once again.

Looking ahead, however, prospects for the industry are clearing up again. Even if producer confidence deteriorated recently due to new Eurozone unrest, production plans are improving. Moreover, new orders increased significantly in March (2.2% MoM; actually the first increase in two consecutive months since March 2012. On top of that, capacity utilisation rebounded in the first months of 2013 and German companies have started to cautiously step up their investment plans.

A week ahead of the release of the first estimate of 1Q GDP growth, the bean counting has begun again. The available hard data provides evidence that the German economy should have left recessionary territory again, even if it has not been a vintage performance so far. Private consumption has increased on the back of low unemployment and wage increases and net-exports have also been growth-supportive so far. Despite renewed Eurozone uncertainty and slightly erratic confidence indicators, the German economy should have left the contraction behind.

All in all, the German economy and the weather seem to be closely linked. Not only has the harsh winter weather taken a huge toll on the entire economy, the economy also seems to copy recent weather variations. In fact, maybe the recovery is just like this year’s springtime. First it is delayed, then it comes with ups and down and when it is finally here, hardly anyone notices.

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