Sunday, June 7, 2015
German economy takes head start in Q2
End of industrial hibernation? After three months of struggling, German industrial production finally gained some momentum in April, increasing by 0.9% MoM. On the year, industrial production was up by 1.4%. The increase was driven by almost all sectors. Only the production in consumer goods decreased by 0.9%. The construction sector remains an important growth driver for the entire German economy with an increase of production of 1.3%. At the same time, the statistical office also released latest trade data. Exports increased by 1.9% MoM in April, from a 1.3% increase in March. As imports decreased by 1.3% MoM, the seasonally-adjusted trade balance increased to 22.3bn euro. A new record high. Obviously, today’s trade data will do little to hush the international dispute on Germany’s high current account surplus and might even provide new material for the discussions at today’s G7 meeting. Even if in non-seasonally adjusted terms, the current account surplus has come down somewhat, seasonally-adjusted numbers speak for themselves. The country’s trade balance is moving from one record high to another. While the criticism of too few domestic investments is clearly justified, it is useful to remember that – at least in the German economy – external and internal activities have hardly ever been two sides of the same coin. It is far from certain that more domestic activity, be it consumption or investment, would automatically lead to a significant reduction of the trade surplus. In fact, last year’s growth performance already showed that solid domestic demand can go hand in hand with net export growth. More generally speaking and returning to the short-term growth outlook of the German economy, this morning’s data shows that the economy has left its industrial hibernation behind. Moreover, since the beginning of the year, hard economic data had troubles matching buoyant confidence indicators. With the latest slight weakening of some sentiment indicators, doubts had emerged that it was rather soft indicators currently adjusting downwards towards weaker activity data than the other way around. Today’s data in fact suggest that strong confidence indicators were not simply built on thin air. Looking ahead, today’s data provide a nice head start to the second quarter. After a somewhat disappointing first quarter growth performance, the German economy is about to gain new momentum. Record low interest rates, the still weak euro, low energy prices and the strong labour market are the best prerequisites for another decent growth performance. Interestingly, a recent ECB survey showed that the demand for new loans from SMEs was also increasing. Possibly first signs that even lackluster investment could finally pick up. However, it is far too early to become too enthusiastic. May data will probably be highly distorted by public holidays and vacation. This means that the final verdict on the current strength of the German economy will only come in June.