German economy makes good start into Q4

The end of the soft spell? German industrial production continued its rebound and increased by by 0.2% MoM in October, from 1.1% in September. On the year, industrial production was up by almost 1%. The increase was mainly driven by the production of intermediate and consumer goods. Moreover, production in the construction sector increased by 1.4%. Today’s data add to the encouraging data from last week when new orders increased by 2.5% MoM in October, after 1.1% in September. Even if the new order data might be slightly blurred by bulk orders, the latest positive trend from the industrial sector suggests that the initially weird sounding explanation of too many vacation at the same time during the summer was a valid reason for the economy’s weakening in the third quarter. Now that all Germans are finally back at work, the industry is rolling again. This is also confirmed by the fact the inventory build-up seems to have stopped in October. For the first time since June, inventories dropped again in November. Looking ahead, the German economy should benefit from a very special stimulus package. As experienced in the past, the German economy is one of main beneficiaries from lower energy prices and a weaker exchange rate. This positive effect should start to kick in in the coming months. Moreover, the fact that next year several public holidays will fall on weekends should add some 0.2%-points to GDP growth. Disappointing economic data since the summer months had given rise to a more general discussion about the state of the German economy. Were the numbers the start of a longer-lasting stagnation or just a soft spell? With today’s numbers the answer is clearly: a soft spell. And, even better, the soft spell should be over in the final quarter. Nevertheless, the economic rebound should not deviate from the fact that the German economy is exhausting the successful structural reforms from the past to the extremes. Even if the soft spell is over, self-complacency is definitely misplaced.