Carsten Brzeski's blog

Germany: Positive surprises exactly when you need them most

After the national soccer shock, trade war fears and political tensions, at least the German economy is surprising to the upside. This week’s data make it easier to become optimistic again.

Industrial production rebounded sharply in May, increasing by a whopping 2.6% MoM, from -1.3% MoM in April. After months of disappointments this good news come exactly at the right time, washing away at least some of the concerns about the strength of the German economy. It was the best monthly performance of industrial production since November last year. On the year, industrial production is up by 3.1%. The increase was mainly driven by strong production increases in the consumer goods and investment goods sector. The construction sector continued its latest surge, seeing activity increase by 3.1% MoM, from 1.1% MoM in April. This development should make the construction sector an important and strong driver of GDP growth in the second quarter.

After a long period of disappointments, this week finally brought some rays of light to the German economy. Better-than-expected PMIs, a rebound in new orders and today’s industrial production bode well for a re-acceleration of the economy in the second half of the year. Obviously, the story about the swallow and the summer is well-known. However, it increasingly looks as if the economy is in a transition towards more normal growth rates. After a period in which the assessment of the German economy has gone from “up one minute, down the next” in slightly more than six months, it is in our view time for some matter-of-factness and – given lowered expectations – even time for some modest optimism. German soccer aficionados currently hope that the same was true for the prospects of their national team.