Carsten Brzeski's blog

German industry sends weak signs of life

Industrial production improved only marginally in October, providing further evidence of Germany’s industrial weakness

After the sharp drop in September, German industrial production recovered only marginally in October, increasing by 0.3% MoM (from -1.6% MoM). On the year, industrial production was up by 1.2%. While the production of intermediate goods and energy dropped, the production of capital and consumer goods went up. The only real upside from this morning’s report is the strong pick-up in activity in the construction sector (1.7% MoM).

The rollercoaster ride of the German industry continues. Today’s industrial production data do not confirm the picture previously painted by confidence indicators and falls short of providing clear evidence of an acceleration of the entire German economy in the final quarter. However, yesterday’s surge in new orders (+4.9% MoM) on the back of stronger demand from China and the US suggested that the acceleration could still materialize.

More generally speaking, however, even some improvement in the next months cannot mask the fact that the German industry is almost stagnating. After an improvement since late-summer details of latest confidence indicators suggest that the industry has already lost momentum again in November. Particularly the uncertainty surrounding the future path of economic policies in the US could weigh on the industry in the months ahead. As the US is Germany’s single most important trading partner, any kind of protectionist policies would clearly harm exporters and the industry.

Looking beyond the short term, the weakness of German investments remains striking. According to latest surveys, investment is still sluggish due to the lack of demand and skilled workers but not due to problematic access to financing. It seems as if to unleash the entire investment potential, German corporates could currently use some government support.

All in all, today’s data bring only little balm for the troubled soul of the German industry. While the data could improve in the next few months and an acceleration of the entire German economy in the final quarter still looks plausible, new risks and disappointments are already looming.