German Industrial Output Growth Tops Expectations; Construction Shrinks

Germany’s industrial production expanded more than expected in February, underpinned by the growth in automotive output, and alleviated the risk of recession.

However, a closely watched survey showed that the construction sector continued to contract in March after output and new orders fell at faster rates.

Industrial output grew 2.0 percent on a monthly basis in February, Destatis reported Thursday. This was faster than economists’ forecast of 0.1 percent gain. The pace of growth eased from 3.7 percent in January.

All major industrial segments expanded from the previous month. The production of capital goods and intermediate goods grew 3.4 percent and 1.8 percent, respectively. At the same time, consumer goods output increased 1.4 percent.

Manufacture of motor vehicles and related parts, which is the largest industrial sector, advanced 7.6 percent from the previous month.

Excluding energy and construction, industrial production grew 2.4 percent in February.

On a yearly basis, industrial production climbed 0.6 percent, in contrast to the 1.6 percent decrease in January.

Data released on Wednesday showed that factory orders grew at a faster pace of 4.8 percent in February on strong demand for automotive parts.

A high backlog of orders, together with lower energy prices and supply-chain improvement would continue to support production, Capital Economics’ economist Franziska Palmas said.

That said, high interest rates and elevated inflation are likely to weigh heavily on demand, making a recession in the economy more likely in the remainder of this year, the economist noted.

In a joint economic forecast, the leading think tanks said Germany’s economic setback in the winter half of 2022/2023 is likely to have been milder than feared. The largest euro area economy is forecast to grow 0.3 percent this year and 1.5 percent next year.

Elsewhere, survey results from S&P Global showed that Germany’s construction sector logged its steepest contraction this year so far, as output and new orders fell at faster rates along with a downbeat outlook. Construction companies scaled back their purchasing activity and reduced workforce numbers.

The construction Purchasing Managers’ Index dropped to 42.9 in March from 48.6 in the previous month. Any reading below 50 indicates contraction in the sector.

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