German industrial production unexpectedly fell in December

German industrial production unexpectedly fell for a second month in December, a sign that a slowdown in major export markets is holding back factory activity despite strong domestic demand.
Output, adjusted for seasonal swings and inflation, fell 1.2% from November, when it declined by a revised 0.1%, data from the Economy Ministry in Berlin showed yesterday. The reading, which tends to be volatile, compares with a median estimate for a 0.5% increase in a Bloomberg survey of economists.
The pullback comes at a time when record-low unemployment and low fuel costs are bolstering consumer spending, but slowing growth in China and emerging market economies are counteracting those positive trends to rein in production. It also came amid a warm December, which could have driven down heating costs.
“It’s a big surprise and it’s disappointing that production didn’t become more dynamic at the end of the year,” said Christoph Swonke, economist at DZ Bank. “On the optimistic side, the economic recovery in the Eurozone as a whole is still on track, and demand from other European countries is still on track.”
Slowing demand from abroad has been a major headwind for industrial output in Germany. Growth in China, for instance, is expected to slow to 6.3% in 2016 from 6.9% last year and 7.3% in 2014, the International Monetary Fund said in its World Economic Outlook released last month. China is Germany’s fourth-largest export market, based on data published by the federal statistics office last year.
“Industrial production went through a dry spell at the end of 2015,” the economy ministry said in the statement. “Given the improved order intake in the final quarter, companies are likely to extend their production again somewhat at the start of the year.”
Total foreign sales fell 1.6% in December, the Federal Statistics Office said in a separate statement yesterday. Imports declined 1.6% from the previous month.
Slower growth overseas may be weighing down companies’ sentiment. Business confidence fell for a second month in January, based on the Ifo institute’s business climate index.
German manufacturing output slid 1.1%, driven by a 2.6% slump in the production of investment goods. Energy production declined 3% and consumer goods output fell 1.4%.
At the same time, domestic developments are helping to shore up growth in Germany. Unemployment slid to 6.2% in January, the lowest level since German reunification, data showed last week.
As consumers take home more money and benefit from a drop in oil prices, they’re spending strongly, helping to drive companies in turn to increase their output.
“With export markets outside the euro area expected to rebound and economic growth within the euro area gaining a little more traction, the healthy underlying state of the German economy should stand out even more clearly over the next two years,” the German Bundesbank said in its December 2015 monthly report.