As Europe’s largest economy, Germany is often seen as a bellwether for the continent’s financial health. In turn, factory output is regarded a good yardstick to measure Germany’s economy. So, when news of a 1.2% drop in German industrial output and a 1.6% fall in exports in December was published this week, commentators were a little shocked – analysts had been expecting a modest rise. A day after Germany's news, France and Italy
revealed that they too had suffered from an industrial output decline in December.
A big surpriseJeff Black, writing for
Bloomberg Business, notes that outside of the factories, Germany is enjoying prosperous times: “Record-low unemployment and low fuel costs are bolstering consumer spending.” Black points to recent data that shows unemployment in January was 6.2%, the lowest level since German reunification.
But amid this happy state of affairs, macroeconomic factors, particularly the slowdown in China, are weighing on factory output: “Slowing growth in China and emerging market economies are counteracting … positive trends to rein in production.”
According to the International Monetary Fund, growth in China is expected to slow to 6.3% in 2016 from 6.9% last year. This is significant for Germany, says Black, because China is the nation’s fourth-largest export market.
1.2%
The drop in German industrial output in December 2015 Black quotes Christoph Swonke, Economist at DZ Bank AG: “It’s a big surprise and it’s disappointing that production didn’t become more dynamic at the end of the year.”
But Swonke recognises that slowing demand from outside of Europe is being tempered by the still strong demand from within it. “On the optimistic side, the economic recovery in the eurozone as a whole is still on track, and [so is] demand from other European countries.”
Bloomberg Business article
Shockingly weakA report by
RTT News underlines the surprising nature of the drop in output – the data confounds analysts’ expectations of a rise of 0.5%. Other concerning statistics highlighted in the article include factory orders falling by 0.7% in December from November – the first decrease in three months.
It is a “painful reminder”, the report says, quoting ING-DiBa Chief Economist Carsten Brzeski, that “not everything is hunky dory in Europe’s largest economy”.
1.6%
The fall in German exports in December 2015The article goes on to share the view of Jonathan Loynes, Chief European Economist at Capital Economics: “December's shockingly weak industrial production figures suggest the German economy barely grew in the fourth quarter and piles further pressure on the European Central Bank to match its dovish words with decisive action at its March policy meeting.”
But the article ends by balancing out the doom and gloom with some more positive figures: “Domestic turnover climbed 1.7% and foreign turnover gained 1.8%. For the whole year of 2015, manufacturing real turnover grew 1.5%.”
RTT News report
More exposed A report in Turkish newspaper
Hurriyet Daily News turned the focus to what the drop means for Germany’s growth in 2016, describing the decline as “cast[ing] a shadow over the outlook for Europe's biggest economy”.
The article notes that while “taking 2015 as a whole, Germany clocked up its highest-ever trade surplus as both exports and imports powered ahead to new annual records”, that is rather old news in light of the new statistics. “Analysts were more concerned about the December data, and suggested that Germany's economic strength could be faltering.”
The article goes on to say that the discouraging figures mean that BayernLB Economist Johannes Mayr’s forecast for overall economic growth of 0.3% in the final quarter of 2015 now seem “ambitious”.
Mayr posits: “The disappointing hard data for the end of last year will fuel concern that the German economy is more exposed to global worries and turbulence on the financial markets.” That said, Mayr does not consider a recession imminent.
Hurriyet Daily News story
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