Carsten Brzeski’s blog

German industry still in stagnation

Another disappointment. German industrial production posted the expected decline in February, providing further evidence that the economy’s former backbone has become weak. Only the construction sector remains an almost inexhaustible source of growth.

In February, industrial production dropped by 0.5% MoM, from a downwardly revised increase of 2.3% MoM in January. On the year, industrial production was up by 1.2%. Looking at the details, all sector decreased in February with the strongest drop in the production of energy, capital goods and consumer goods. The relatively mild winter weather continues to boosted activity in the construction sector, which grew by another 1.3%, from 4.5% in January. by an astonishing 7%. Good news is that compared with the final quarter of 2015, industrial production is still up by some 2%.

Industrial production has become a kind of problem child over the last months. Despite tentative signs of stabilization, industrial production has stagnated for a long while. In fact, with an average monthly growth rate of -0.1% MoM, the year 2015 recorded the worst performance since 2012 and the new year does not seem to be much better. Still, there are some tender rays of hope at the end of the tunnel: the recent drop in inventories combined with a pick up in corporate loans and capacity utilization at the highest level since end-2011 suggests that it is too early, yet, to give up on the German industry.