Tuesday, October 6, 2015

German IP disappoints in August

“I know what you did last summer…”. German industrial production disappointed in August, dropping by 1.2% MoM, from +1.2% MoM in July. On the year, industrial production is still up by 2.3%. The drop was widely spread across all sectors. Only the production of intermediate goods remained flat. The sharpest declines were recorded in the production of capital goods and energy. The German industry is still struggling to gain momentum. Yesterday’s drop in new orders already signaled a note of caution. The August drop marked the first decline for two consecutive months since the beginning of the year. A clear sign for caution. Over the last couple of months, the industrial safety net of low inventories and filled order books has become thinner. Somehow, the weak euro and extremely favourable financing conditions have not fully deployed their full impact on the economy, yet. Since the end of last year, industrial production has remained flat. In the same period, exports have grown by 1% on average each month. Strong confidence indicators, sluggish production and booming exports. This seems to be the new conundrum of the German economy. All in all, today’s weak industrial production data will again give rise to speculation that the German economy is suffering from the Chinese slowdown. In our view, however, there is no need to panic. Just remember last summer when the German industry went through a similar period of weak data. In the end, the batch of disappointing data was rather the result of too many Germans enjoying too much vacation than the beginning of a downward trend. Let’s hope that history repeats itself.

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