Too little too late. German industrial production did not show any pre-Brexit weakness, increasing by 0.8% MoM in June, from -0.9% MoM in May. The increase, however, comes too late to make a disappointing quarter for the German industry a good one.
On the year, industrial production was up by 0.5%, from -0.3% in May. Looking at the details, production of capital goods and consumer goods were the main drivers of the June pick-up. After the strong first quarter, the construction sector continued its recent downward correction, dropping by 0.5% MoM; the fourth consecutive decrease of activity in the construction sector. Interestingly, the correction in the construction sector is somewhat counterintuitive to anecdotal evidence of an ever-booming real estate sector in Germany. Taken at face value, however, construction should have been a severe drag on GDP growth in the second quarter.
The British referendum came too late in June to really have an impact on German industrial production. However, increased uncertainty about the future of Europe and the Eurozone in the wake of the Brexit vote should in our view leave some marks on German industrial activity over the coming months. With stagnating industrial activity, thinner order books and dropping inventories, chances remain low that the former backbone of the German economy will quickly return to its old strength.
All in all, today’s industrial production data take away some fears of a hard landing of the German economy in the second quarter (GDP data to be released on Friday). The negative impact from industrial production and the construction sector should, in our opinion, be more than offset by strong private consumption.