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Germany’s Factories Are Humming Again – But May Not Be For Long

Sigmar Gabriel Visits Siemens Gas Turbine FactorySigmar Gabriel Visits Siemens Gas Turbine Factory
Busy for now - but will it last?Carsten Koall Getty Images

German industrial output rose in January at its fastest pace in more than six years, showing that the engine room of Europe’s largest economy began 2016 well despite the financial market turmoil that has hurt business sentiment.

Output rose by 3.3 percent on the month, data from the Economy Ministry showed on Tuesday, surpassing the mid-range forecast in a Reuters poll for a 0.5 percent gain. The rise was the biggest since September 2009.

Relatively mild winter weather allowed construction output to rise by 7.0 percent on the month. Capital goods were another bright spot, rising 5.3 percent. However, analysts said the economy faced challenges.

“Order books are still not filled and the production boom coincides with inventory reductions,” said ING economist Carsten Brzeski.

“Moreover, the drop in confidence indicators and production expectations over the last months suggest that things could still first get worse before they really get better for German industry,” he added.

 

Industrial orders fell in January, but a spike in orders from Eurozone countries cushioned a drop in demand from domestic customers, data showed.

Companies have also been unnerved by turmoil on global financial markets earlier this year and a slowdown in key export markets, including China. Sentiment among German manufacturers plunged in February by the largest margin since the bankruptcy of Lehman Brothers in 2008, deepening concerns about the health of the economy.

Elsewhere in the Eurozone, Spain (the currency bloc’s fourth-largest economy) reported that its industrial output slowed slightly in January, against the background of an inconclusive election that has failed to produce a government and left business concerned about the country’s future direction.

However, once again the mild winter played a part in the figures, with a 7.5 percent drop in energy output dragging on the headline number. Adjusted for working days, Spain’s industrial output rose 3.5 percent year-on-year in January, below a Reuters forecast of a 3.7 percent increase and down from a 4.1 percent rise in December.

Elsewhere, the E.U. statistics office Eurostat confirmed that the Eurozone economy expanded by 0.3% in the fourth quarter of last year, leaving output up 1.6% from a year earlier. The data come ahead of a key European Central Bank governing council meeting on Thursday, where market participants expect President Mario Draghi to announce more stimulus measures to ward off deflation as the world economy slows.