Carsten Brzeski's blog

Germany: Industrial relief

German industrial data in November finally delivers evidence of an acceleration of the economy in the final quarter of 2016.

The New Year started with some mildly good news. Even though it is data for November last year, the latest batch of industrial data shows that the German economy should have accelerated in the final quarter of the year. Industrial production increased by another meagre 0.4% MoM, from 0.5% MoM in October. Activity in the construction sector remains the showcase of the industry, benefiting from the mild weather in November. At the same time, exports increased by a whopping 3.9% MoM in November, from 0.5% MoM in October. As imports at the same time increased by 3.5% MoM, the seasonally-adjusted trade surplus widened to 21.1bn euro, from20.6bn euro in October.

Today’s data finally bring some evidence that the German economy gained momentum in the final quarter of the year. Even though industrial data is still not living up to the expectations created by buoyant soft indicators, the surge in exports and the gradual recovery of industrial production brings some relief for a battered industry. Still, going into 2017, the main growth driver of the German economy should continue to be domestic demand, rather than exports or industrial production. Against the backdrop of continued political uncertainty in the Eurozone, the big dark horse for German growth will be investments. Simply based on fundamentals (low interest rates, slowly increasing capacity utilization) the scene is set for a pick-up in investments.

Later this week, the German statistical office will deliver it’s annual “headache for analysts” press conference, presenting a first estimate for 2016 GDP growth without any hard data for the last month of the year. Today’s industrial data have in our view prepared the grounds for a re-acceleration of GDP growth in the final quarter and a strong number for 2016 growth.