Blog Carsten Brzeski

German industrial hibernation

The cold winter weather and the Christmas holiday season led to shrinking industrial activity in December

A month to forget. The German industry went into hibernation in December, with industrial production dropping by a shocking 3% MoM. On the year, industrial production was down by 0.6%. The December drop was driven by all sectors. Even though it looks dramatic, today’s December drop should be taken with a pinch of salt. The cold winter weather and the Christmas season should be the main reasons for the sharp fall in December.

Obviously, with today’s data, the implicit estimate of 0.5% QoQ GDP growth in the fourth quarter, as announced by the German statistical agency in early January, could be subject to some downward revision. Today’s data are also a good reminder that the German industry is far off earlier strength.

Looking ahead, the cold winter weather in January does not bode well for industrial activity at the start of the year. The construction sector, currently one of the most important German growth drivers, will take a couple of more months before waking up from hibernation. However, once it does, activity data should surge again. As regards the manufacturing sector, yesterday’s strong new orders provided some hope for accelerating activity in 2017. At the same time, uncertainty in and about two of Germany’s most important trading partner, the US and the UK, should put a cap on any upward potential.

While industrial production remains sluggish, Germany is warming up for the September elections. In this regards, yesterday was a remarkable day as an opinion poll conduct for German tabloid Bild put the SPD (31%) ahead of Merkel’s CDU (30%) for the first time since November 2006. Obviously, early February polls are of no use to predict the outcome of the September elections. Still, the polls show that the SPD, Merkel’s junior coalition partner, has finally returned from the political dead. For a long while, the SPD had been at historic lows in national opinion polls. Since the announcement that Martin Schulz will be the SPD’s front-runner for the elections, both the SPD and Schulz have enjoyed a warm tail wind in public support. A lot can and will happen ahead of the September elections. However, Schulz’s emergence in the polls suggests that there is a broader, subliminal appetite for change in the German electorate than many observers had assumed.

All in all, latest news and data suggest that the year 2017 could be more exciting for Germany than previously thought, both in terms of politics and the economy.