German output drop raises doubts about growth prospects

German industrial output plunged in December at the steepest rate in 16 months and exports unexpectedly dropped, in a sign that Europe’s largest economy ended 2015 on a weak footing.

The unexpectedly weak data raised questions about the future growth prospects of Germany’s traditionally export-oriented economy, which is facing a slowdown in emerging markets as well as some signs the US economy may be cooling.

At the same time, Jens Weidmann, head of the Bundesbank, has challenged the narrative suggesting that a record influx of refugees will be positive for the economy, arguing that it will in fact have a dampening effect for a sustained period.

Industrial output fell by 1.2 per cent on the month in December, the strongest drop since August 2014, data from the economy ministry showed. The figure fell far short of the consensus forecast in a Reuters poll for a 0.4 per cent increase.

“Industrial production went through a dry spell at the end of 2015,” the economy ministry said in a statement, adding that production from October to December fell by 0.8 per cent on the quarter.

Separate data from the Federal Statistics Office showed that seasonally adjusted exports and imports both fell by 1.6 per cent in December, narrowing the trade surplus to €18.8 billion.

Economists polled by Reuters had expected exports to rise by 0.5 per cent and imports to go down by 0.5 per cent with a predicted trade surplus of €20.2 billion.

For 2015, Germany registered a new record trade surplus of €247.8 billion, the data showed.

“This morning’s data were a painful reminder that not all is hunky dory in the euro zone’s largest economy,” ING Bank economist Carsten Brzeski said.

“In fact, the German ‘Wirtschaftswunder’ has only some domestic magic left,” Ms Brzeski noted, adding that consumption has become the most important growth driver thanks to a strong labour market, low interest rates and higher real wages.

The figures came after data on Friday showed that weaker domestic demand drove a bigger-than-expected drop in industrial orders in December, in a sign that the economy might lose some steam at the beginning of this year.

The Statistics Office is due to publish detailed data for fourth-quarter gross domestic product on Friday.

Economists polled by Reuters expect the German economy to have grown by 0.3 per cent on the quarter which would be the same rate of expansion as in the third quarter.

In the whole of 2015, strong private consumption and higher state spending drove an economic expansion of 1.7 per cent, preliminary data from the Statistics Office showed last month.

The spike in domestic demand has so far helped Germany’s traditionally export-oriented economy cope with an emerging markets slowdown, which has dented foreign demand.

Reuters