The latest industrial production figures from Germany show a fall. Market analysts had been optimistic about further growth.
German industrial production surprisingly disappointed in June, dropping by 1.1% month on month compared to 1.2% growth in May.
The drop was put down to weaker production of capital, consumer and intermediate goods. Activity in the construction sector dropped for the second month in a row (-1.0% month-on month from -1.3% in May). Energy was the only sector to show increased activity for the month.
Over the 12-month period, industrial production was up by 2.5% in June, from 4.9% in May.
While the April and May data had been slightly blurred by seasonal effects, today’s industrial production data probably show a truer picture of German industry.
According to Carston Brzeski, chief economist ING, Germany, that picture is neither overly enthusiastic, nor overly depressed.
“Despite today’s drop, industrial production is still up compared with an already strong first quarter. Despite two sluggish months, the construction sector has been a growth driver in the second quarter. Even though today’s data are a negative surprise, hard data is still catching up with soft data; only not as impressively as some might have hoped.”
He added: “With little risks from the outside, Germany has created its own domestic problems. The latest scandals (diesel emissions) and events in the automotive industry (international competition for electric cars and the prospect of greater car sharing) could eventually harm the German economy. “
The automotive industry is a key industry for the German economy. One in every five cars worldwide carries a German brand, cars and auto parts account for roughly one fifth of all German exports.
Brzeski points out that in terms of gross added-value, the automotive industry accounts for roughly 9% of industrial activity; significant but clearly not the sole destiny for the entire economy.
He adds that unexpected as today’s drop in industrial production has been, the German economy is still on track to post another strong quarter.
“Given the sound fundamentals, a month of weaker industrial data should only be like a rain shower on hot and humid summer day: a welcome refresher.”
Indeed, industrial orders for June surprised on the upside. Industrial orders are closely watched as an indicator of the future level of activity in an economy.
The Dax index fell slightly in early morning trading.