September data for industrial production and exports point to rather flattish GDP growth in the third quarter
German industry remains a mystery. Monthly data on industrial performance is almost as erratic as data from small economies and makes it hard to detect a clear trend. After the shocking drop in July and an even stronger rebound in August, industrial production fell sharply by 1.8% MoM in September, suggesting that industry is stuck in stagnation. On the year, industrial production was up by 1.2%. The September drop was almost equally spread across all sectors. Compared with the second quarter, industrial production remained flat. Only the construction sector should have been a growth driver in the third quarter.
At the same time, Germany’s seasonally-adjusted trade surplus narrowed somewhat on the back of dropping exports (-0.7% MoM) and imports (-0.5% MoM). Bilateral trade data shows that over the summer months, exports to the US, China and the UK were an important source of export growth, accounting for almost 25% of total German exports. The weak euro exchange rate played an important role in this performance. At the same time, however, this strength is also the biggest Achilles’ heel for German exports. The recent nosedive of the Pound Sterling should clearly leave its marks on German trade as would more trade protectionism under the new US president or renewed negative growth surprises from China.
The German economy remains on an incredible roller-coaster ride. Down one minute, up the next. The combination of Brexit uncertainty, a mature business cycle and political and economic uncertainty in many important trading partners keeps the industry treading water.
After today’s data, the traditional quarterly bean-counting has started again. Next week, German Q3 GDP will be released. Even though several Eurozone countries have surpassed Germany, publishing their GDP data far earlier, and even Eurostat has a first flash estimate for the entire Eurozone, interest in the German growth performance remains high. Based on the available monthly data, the rollercoaster ride of the economy could end with a disappointment of meagre growth, driven by the construction sector and exports.