German Factory Output Surges as Growth Sees Long-Awaited Rebound

(Bloomberg) -- German industrial production picked up in May, signaling that the economy is beginning to stabilize after a stumble earlier in the year.

The 2.6 percent increase was the best in six months and far better than the 0.3 percent growth forecast by economists. It follows data Thursday showing a surge in factory orders in May, the first increase this year and one that prompted Commerzbank to respond: “Finally, some good news.”

While the industrial numbers can be volatile month to month, they do provide signs for Europe’s largest economy that the ongoing expansion isn’t under threat. The composite PMI for the euro area, a broad measure of private-sector activity, has also stopped falling, and an economic surprise index has rebounded in recent weeks.

What Our Economists Say

“The surge in Germany’s industrial production in May suggests the slowdown in GDP growth in 1Q was caused by temporary factors, such as the weather and widespread influenza, and a rebound is in train.”
-- David Powell and Jamie Murray, Bloomberg Economics. For full report, click here.

The Bundesbank has expressed confidence that the series of downbeat data since the start of the year will prove temporary. But there’s no ignoring the threats to the outlook, particularly the ramping up in protectionism that took another major step on Friday, when U.S. tariffs on $34 billion of Chinese imports came into force, and China immediately retaliated.

Consumer goods led gains in the latest German production data, followed by construction and capital goods. A decline in April was revised to 1.3 percent from 1 percent, but the Economy Ministry noted that public holidays may have affected the data in recent months.

The latest data have also helped reverse a trend of economic disappointments. A Citigroup Economic Surprise Index for the euro area had fallen to the lowest in seven years as indicators missed expectations, but has picked up again since mid-June. Data next week will determine if that rebound can continue:

DayDataRecent Trend
MondayFrench industrial confidence (June)Fallen for three straight months 
TuesdayFrench industrial production (May)Fallen two months in a row
Italian industrial production (May)Fallen for three of the past four months
German ZEW investor expectations (July)Hasn’t gained since January. Lowest since 2012
ThursdayEuro-area industrial production (May)Fallen four of the past five months

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