German industry output rises beyond expectations

BERLIN: German industrial production rose more than expected in January, driven by strong demand for machinery, vehicles and other capital goods, data showed on Wednesday, suggesting Europe’s biggest economy started into 2017 on a solid footing.

The figures, published by the Economy Ministry on Wednesday, gave some reassurance that Germany’s economic upswing is likely to continue after data on Tuesday showed industrial orders posting their biggest monthly slump in eight years.

“Industrial production is back on track,” Bankhaus Lampe economist Alexander Krueger said, adding that factories would push up overall economic growth in the first quarter of 2017.

Industrial output jumped 2.8 percent on the month, the data showed. This was the strongest monthly increase since August 2016 and overshot the consensus forecast in a Reuters poll for a rise of 2.5 percent. The December reading was revised up to a fall of 2.4 percent from a previously reported drop of 3 percent.

January’s increase was driven by a 3.7 percent increase in manufacturing output, with demand for machinery, vehicles and other capital goods rising by 6.1 percent — the strongest monthly increase since August 2013.

Construction production fell 1.3 percent while energy output edged down 0.7 percent, the data showed.

“The cold winter weather is still taking its toll on the construction sector, which shrank for the second month in a row,” ING economist Carsten Brzeski said.

“Given the cold February, the negative trend in the construction sector could continue another month before returning as an important growth driver for the entire economy.”

The Economy Ministry said the rise in January was above the average development in the fourth quarter, adding that sentiment surveys signaled a positive business climate, meaning the industrial upswing is likely to gain further momentum.

Bankhaus Lampe’s Krueger gave a more cautious outlook. “The tailwind from industry for overall economic growth will ease significantly after the first quarter of 2017,” he said.

The German economy quadrupled its quarterly growth pace to 0.4 percent in the final three months of 2016 as higher state and household spending and construction more than offset a drag from net trade with imports rising more than exports.

Economists expect German economic growth to accelerate further in the first quarter of 2017. The government forecasts gross domestic product (GDP) to grow 1.4 percent this year.

This would be below the performance of 2016 when the economy expanded by 1.9 percent, the strongest rate in half a decade, driven by soaring private consumption, increased state spending on roads and refugees as well as higher investment in housing.