Industrial Production: German Economy Failing to Build Traction
Image © Adobe Stock
German data out this morning has disappointed with the highly relevant industrial production series showing a contraction in activity in June.
Germany industrial production for June read at -0.9% month-on-month, down from the previous month's 2.4%. Consensus expectations were for a softer decline of -0.5%.
The annualised figure sits at 2.5%, down from a previous 3.0% according to data from Germany's official statistics body Destatis.
"Industrial production is a bellwether for the overall economy," says Florian Hense, an economist with Berenberg Bank, "but monthly data can be volatile, so we should take the usual ups and downs with a pinch of salt."
Therefore, financial markets are likely willing to give the Euro the benefit of the doubt when it comes to reading too much into today's data.
"The second quarter ended on a pretty weak note," says Dr. Andreas Rees, Chief German Economist with UniCredit Bank in Frankfurt.
"Major industrial activity data declined or remained unchanged on a monthly basis. Besides industrial production and exports, yesterday’s release of new orders flagged a whopping decline of 4.0% mom in June. Although we were taken by surprise by the latest weakness, we urge not to read too much into it. Keep in mind that in all three cases the declines (or stagnation) came after strong increases in the previous month. In other words, such a pattern is likely to be just volatility and is far from unusual on a monthly basis," adds Rees.
The losses in industrial production were broad-based according to Destatis: manufacturing (and mining), making up for 80% of total output, fell by 0.9% mom (intermediate goods: -0.8%; capital goods: -0.6%; consumer goods: -1.6%). Construction (14%) suffered a bigger hit of 3.2%.
Berenberg's Hense says regardless of whether data will pick up over coming months, the times of the exceptionally strong gains of 2017 during which output expanded by 1.2% quarter-on-quarter on average are clearly over.
Hense warns that simmering trade tensions as pursued by US President Donald Trump are having an impact:
"Yesterday’s disappointing factory orders (-4% mom in June), which lead output by roughly 2 months on an annual basis, and unchanged export data for June add to the impression that the trade tensions continue to cast dark shadows over the German economy."
Germany's trade balance was recorded at $19.3BN in June, down on the previous month's balance of 20.4BN and below consensus expectations for a reading of 21.4BN.
Germany exported goods to the value of 115.5 billion euros and imported goods to the value of 93.7 billion euros in June 2018.
Destatis reports to be the highest monthly import value since foreign trade statistics were first published in 1950.
"Going forward, supply bottlenecks may restrict the pace by which German production can expand as much as the uncertainty arising from the trade tensions," says Berenberg's Hense.
Going forward, UniCredit's Rees expects a moderate acceleration in the industrial sector on average, driven by global trade and solid domestic demand.
"However, it could become a bumpy ride over the summer months. July, August and sometimes September months are notorious for even more volatility, given the start and end of the vacation period," warns Rees.
