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Carsten Brzeski's blog

Germany: November data confirm strong final quarter performance

Surging industrial data suggest that the German growth party continued in the fourth quarter of 2017.

After two disappointing months due to weather effects and vacation planning, German industrial production finally staged a strong comeback. According to data just released, industrial production increased by 3.4% MoM in November, from -1.4% MoM in October. The strongest monthly increase since September 2009. On the year, industrial production was up by 5.6%. The increase was driven by all sectors except for energy.

At the same time, trade data also confirmed that the industrial engine is roaring. In November, exports surged by 4.1% MoM, after a 0.3% drop in October. As imports increased by 2.3%, the seasonally-adjusted trade balance widened to 22.4bn euro, from 19.9 bn euro in October.

There are two main takeaways from this morning’s industrial data:

  • The German industry has gone through a small rollercoaster ride since the start of the summer. Disappointing numbers were followed by impressive rebounds. Behind the vacation and weather driven white noise of monthly data, however, there is a clear upward trend. Up to now, industrial production has had its best year since 2011. Contrary to earlier cycles, industrial production has been a lagging, rather than a leading indicator for the German recovery.
  • The strengthening of the euro exchange rate since April 2017 has left the German export sector unharmed. The geographic diversity of German exports once again seems to be the key to success. Particularly, Germany’s close and distant neighbours in the East have safeguarded this year’s export revival. Germany currently exports as much to Hungary, Poland and the Czech Republic as it does to the Netherlands, Belgium and Luxembourg. Exports to China have also rebounded this year. At the same time, the US remains the single most important export destination, while exports to the UK are becoming less important.

After a weak start to the fourth quarter, the German economy has returned to full speed. With November finally being a month that was not heavily affected by vacation planning or weather, the German industry could finally show its real face. However, December data could again be blurred by the Christmas period.

Luckily, the guestimating about the strength of the German economy in the fourth quarter will come to an end in two days. On Thursday, the German statistical office will continue with its strange habit of releasing GDP growth data for the entire year of 2017, without having a single piece of hard data from December. It looks very likely that the German economy has had its best performance since 2011 and there is currently very little reason to believe that the strong performance could end any time soon.