German industrial production falls again in December

The German manufacturing data released yesterday had implied a rebound in orders in the fourth quarter and a solid rise in turnover in December; however, today’s production data were disappointingly weak. The total industrial output dropped for the fourth straight month in December, falling 0.4 percent sequentially. On a year-on-year basis, the industrial production dropped 3.9 percent, little changed from the previous month, but over 10 percentage points down from December 2017 illustrating the sharp turnaround in fortunes for the sector over the past year.

Delving into details, there were some positives nevertheless. Manufacturing output rose a bit, by only 0.2 percent, with production of consumer and intermediate goods alike down for the fourth successive month. However, production of capital goods was up nearly 1 percent sequentially, while output of motor vehicles recovered sharply, rising 7.2 percent sequentially, the most in 16 months.

Other sources of softness – markedly chemicals and pharmaceuticals – also returned to positive growth after falling sharply in earlier months. Construction mainly drove the fall in the overall industrial production, declining over 4 percent sequentially, representing the softest reading in nearly two years.

In all, December’s prints left industrial production in the fourth quarter down by 1.5 percent, only slightly less severe than the fall in the third quarter, implying that the sector continued to be a significant drag on the GDP growth at the end of the year. While construction fell 0.6 percent quarterly, manufacturing output dropped 1.6 percent quarterly with production of consumer goods falling 5.7 percent, chemicals falling 10 percent and pharmaceuticals down by over one fifth.

On the contrary, output of capital goods dropped 0.1 percent with production of motor vehicles rising 1.4 percent quarterly having dropped 8 percent in the third quarter. The marked rebound in auto sector orders in December to a series high gives grounds for some cautious optimism regarding the near-term outlook too, noted Daiwa Capital Market Research in a report.

“However, surveys point to continued weakness across the bulk of German manufacturing in early 2019 - the output PMI fell back in January to November's level of 50.3 and the new orders PMI plunged to a particularly weak 44.9, both their lowest readings in more than six years. So, we won't hold our breath for a sustained rebound in output just yet”, added Daiwa Capital Market Research.

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