German IP Jumps in January; Sequential Acceleration Is in Progress

Industrial production in Germany rose by 3.5% month-over-month, but it continued to decline year-over-year as it remains lower than its January 2022 level by 1.2%. However, over six months IP is growing at a 2.5% pace and over three months it is advancing at a 5.4% pace. German industrial output is accelerating and climbing out of a year-over-year hole.

Despite the clear, strong, acceleration in overall industrial output and in manufacturing alone, the three sectors consumer goods, capital goods and intermediate goods fail to produce one sector with output that is sequentially accelerating, like the headline.

Month-to-month, while overall industrial output was up sharply, output fell for consumer goods and capital goods; however, intermediate goods output grew by a sharp 6.9% month-to-month.

Construction sector output also rose strongly in January after a nearly equally strong drop in November. Sequential growth rates for construction are mixed.

Real sales rose by 0.2% in January and came close to showing sequential acceleration. Certainly demand is showing a strong recovery in progress.

The current ZEW assessment of Germany’s industrial sector has a deep negative value. However, ranking each of the industrial gauges produces rank standing below the 30th percentile for the ZEW current index, the IFO manufacturing gauge and IFO manufacturing expectations. The EU Commission index has a stronger standing at its 71.8 percentile.

Elsewhere the year-on-year growth rates show only the capital goods sector with a standing above its 50% percentile on data back 2000. The construction sector has sub-50-percentile standing as do real sales. Standings below the 50% mark are standings below their respective medians. In contrast, German real manufacturing order growth is strong.

For reference, two other early reporting European countries Portugal (an EMU member) and Norway, experienced very different recent trends and percentile standings.

The financial column shows changes in the various metrics either their index levels for IP gauges or index levels for surveys in January 2023 to performance in January 2020. Output is broadly lower than it was in January 2020, putting the industrial performance of the last three years in perspective.

Headline German production is accelerating, and quarter-to-date most gauges are showing ongoing increases. But industrial metrics show there has been weak momentum over the last three years and that most industrial metrics are currently extremely low. We are currently seeing evidence of a bounce in activity amid weak conditions and at a time that inflation continues to run hot and central banks continue to battle inflation. A number of indicators, contrarily, show slowdowns in progress. Today German retail sales were reported to have fallen in January; they continue to show weakness and add to their year-on-year weakness. These sorts of cross current raise questions about the outlook.