Carsten Brzeski’s blog

German IP stages strong comeback in January

Too good to be true? German industrial production staged an impressive comeback in January, hushing slowdown fears at least for the time being. In January, industrial production increased by a whopping 3.3% MoM, from an upwardly revised -0.3% MoM in December. The revision of the December data showed once again how sensitive to seasonal and vacation effects these data are. On the year, industrial production was up by 2.3%. Looking at the details, all sector increased in January with the strongest increases in consumer goods (3.7%), manufacturing (3.2%) and capital goods (5.3%). The relatively mild winter weather boosted activity in the construction sector by an astonishing 7%. Compared with the final quarter of 2015, industrial production was up by more than 3%.

Since the summer, industrial production had become a kind of problem child over the last months. The continued slowdown since the summer has been driven by several external factors like the Chinese slowdown, problems in other emerging markets, the adverse effects of low energy prices and still struggling Eurozone peers. Moreover, the strong domestic economy had also not, yet, led to booming industrial production; except for the construction sector. As a result, capacity utilization in the German industry is currently still not higher than historical averages, providing another explanation for rather sluggish domestic investment.

This morning’s data should bring some relief for the German industry. Industrial production sent a strong sign of life. The January data should hush the worst concerns about the former backbone of the German economy. However, today’s data are almost too good to be true. Order books are still not filled and the production boom coincides with inventory reductions. Moreover, the drop in confidence indicators and production expectation over the last months suggest that things could still first get worse before they really get better for the German industry.