German industry output raises growth hopes for first quarter

BERLIN (Reuters) - German economic growth looked set to accelerate in the first quarter of 2016 after official figures released on Wednesday showed industrial output fell less than expected in February.

An employee of German car manufacturer Mercedes Benz works on the interior of a GLA model at their production line at the factory in Rastatt, Germany, in this January 22, 2016 file photo. REUTERS/Kai Pfaffenbach/Files

Following the sector’s jump in January, the surprisingly small dip gave analysts some relief after data on Tuesday showed industrial orders unexpectedly dropped in February due to weaker foreign demand, particularly from euro zone countries.

The global economic slowdown has also been causing concern for Germany’s traditionally export-reliant economy.

Industrial output edged down 0.5 percent in February on the month after a revised 2.3 percent increase in January, data from the Economy Ministry showed. This was well above the mid-range forecast in a Reuters poll for a 1.8 percent decline.

“Looking at January and February together, the picture is looking bright. Industrial production is pointing upward,” Dekabank economist Andreas Scheuerle said, adding the data pointed to growth picking up to an estimated GDP rate of around 0.5 percent in the first quarter.

“But nobody should take this as a sure-fire success for the rest of the year. The problems on global sales markets are not solved yet,” he added.

Capital Economics analyst Jonathan Loynes said February’s figure provided a very solid platform for the first quarter. Even if production was to fall around 1 percent in March, this would still leave a solid gain for the whole quarter, he noted.

“That, in turn, could potentially lift the quarterly rate of German GDP growth from Q4’s 0.3 percent to around 0.7 percent in Q1,” Loynes added.

A breakdown of the February data showed construction firms posting strong gains while the energy sector and factories producing consumer and capital goods reported weaker output.

“Overall, the industrial sector got off to a relatively good start in 2016 although seasonal factors led to shifts in production and the construction sector benefited from the mild winter,” the Economy Ministry noted.

The manufacturing and construction sectors are expected to post solid gains in the first quarter, the ministry added.

The booming construction sector is currently one of the main growth drivers in Germany. In the last three months of 2015, construction investment and state spending were the two biggest growth contributors while net foreign trade was a drag.

In the whole of 2015, strong private consumption and higher state spending drove an economic expansion of 1.7 percent. But analysts doubt that growth this year will surpass that pace.

The country’s leading economic institutes will update their joint growth forecast for 2016 on April 14 and the government is expected to publish its own updated forecast on April 20.

Additional reporting by Rene Wagner; Editing by Tom Heneghan