“It is a good start for the German economy in the new year,” one Germany economic researcher says, but “we don’t think that this will start a lasting uptrend.”
German industrial production jumped by the most in more than six years in January, in a sign that strong domestic demand might be helping to underpin output even as external trade cools.
Production, adjusted for seasonal swings, climbed 3.3% from the prior month after retreating a revised 0.3% in December, according to data released Tuesday by the Economy Ministry in Berlin. That’s the biggest increase since September 2009 and the first gain in three months. It was stronger than all projections in a Bloomberg survey of economists, which had a median forecast for 0.5% growth.
While German consumers continue to spend robustly and investment and construction bounced back from December, manufacturers still face a number of challenges this year. A China-led slowdown in emerging markets is slowing exports and market volatility has dealt a blow to business confidence and factory orders.
“It is a good start for the German economy in the new year,” said Ralph Solveen, head of economic research at Commerzbank AG in Frankfurt. “We don’t think that this will start a lasting uptrend.”
Solveen had the highest forecast for production in the Bloomberg survey, at 2%, but said a slowdown in emerging markets is among the factors tempering his outlook. Mild weather probably helped construction in January, he added.
Construction jumped 7% from December and investment goods output rose 5.3%, the report showed. Consumer goods production increased 3.7% and manufacturing increased 3.2%. Industrial output rose 2.2% from a year earlier, again beating the highest economist estimate.
“After a weak spell in second half 2015, the manufacturing industry had a very good start in the new year,” the ministry said in a press release. “Overall, a moderate recovery in industrial activity is expected in the first quarter.”
Companies may yet struggle to gain pricing power. Germany’s inflation rate dropped to minus 0.2% last month, the weakest figure in more than a year. Euro-area inflation was also minus 0.2%. Economists and investors predict the European Central Bank will add fresh stimulus for the region when policy makers meet in Frankfurt on Thursday.
By Jeanna Smialek and Alessandro Speciale