There clearly was more good news than bad in today’s and yesterday’s numbers for orders and production in German industry. As it accounts for a third of the Euro-area’s industry and for almost half when only looking at capital goods production, it is also good news for the troubled Euro-area economy.
– Good of course that both domestic and foreign orders increased in March, by a total of 2.2% m/m. That gives a modest 0.4% increase in Q1 over Q4.
– Manufacturing output rose by 1.4% m/m in March and by 0.6% in Q1 over Q4. That does not make up for for the steep fall in Q4 but will contribute, in our view, to a rise in German GDP of around ¼% q/q in Q1. A flash estimate for (German and Euro-area) GDP will be published on 15 May.
– Orders from the Euro area increased strongly (+4.2% m/m). However, we have seen that as well as subsequent setbacks before. But let’s take it as positive that also the demand for capital goods from the Euro area increased stongly and to its highest level in 16 months.
– Domestic demand for consumer good still looks weak. German consumers remain hesitant, it seems. Even increased demand for beer around the inner-German Champions League final on 25 May probably won’t change that.
– Also still somehow worrisome is the rather weak domestic demand for capital goods. However, the best indicator for (future) fixed capital spending in Germany usually is the (nominal) domestic turnover for capital goods. Turnover increased strongly in March and by 0.5% in Q1 over Q4. So, there is good reason to expect that capital spending stabilized in Q1 and might grow in the current quarter. More capital spending means more jobs so that the recent (slight) rise in German unemployment numbers could be over soon.
So, basically good news from the German industry. Just one technical note of caution is warranted: Easter was in (late) March this year while in most years in falls into April. Methods of seasonal adjustment usually can’t totally cope with this kind of calendar effects. But that doesn’t change the message: The manufacturing sector in Germany is improving.
Nordea