Germany: Industrial activity expands in February, but storm clouds gather
On a seasonally-adjusted monthly basis, industrial production rose 0.2% in February (January: +1.4% mom). The softer expansion reflected contracting capital goods production and a drop in construction sector activity. On the other hand, consumer goods and intermediate goods production growth accelerated.
Industrial output rose 3.2% year-on-year in working-day adjusted terms in February (January: +1.1% yoy). The result marked the best reading since July 2021. Meanwhile, the trend pointed up, with the annual average growth of industrial production coming in at 5.0% in February, from January’s 3.6% reading.
While the data suggests that industrial sector gained steam in the first quarter of the year, it should be noted that the outbreak of the war in Ukraine in late-February will have a marked impact on the sector’s fortunes at the close of the quarter and thereafter. The data suggests that the German economy was set to perform robustly had the war not broken out.
Carsten Brzeksi, global head of macro at ING, added:
“The war in Ukraine has not only dramatically changed the world but also the outlook for the German economy. Higher energy and commodity prices than at the start of the year and probably for a long time, new supply chain disruptions on top of the old ones with a high risk that these will be disrupted for good, and elevated uncertainty and fear will weigh on both supply and demand in the coming months. […] For the entire year, we recently revised downward our growth forecast to 1.4%, which would delay the return of the economy to pre-pandemic levels until the end of this year”