German industrial output unexpectedly rises in August

German industrial production unexpectedly rose in August, according to figures released by Destatis on Tuesday.

Industrial output increased 0.3% from July, beating expectations for a flat reading. Meanwhile, July's drop was revised up 0.4% from 0.6%.

On the year, industrial production was down 4% in August compared to a revised 3.9% drop in July, coming in better than consensus expectations for a 4.3% fall.

Production in industry was up 0.3% on the previous month on a price, seasonally and calendar adjusted basis.

Production in industry excluding energy and construction was up 0.7%, with the production of intermediate goods 1% higher and the production of capital goods up 1.1%.

The production of consumer goods showed a 1% fall. Outside industry, energy production was down 1.7% in August and the production in construction decreased 1.5%.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the figures were "a bit better" but the third quarter as a whole was weak.

"Looking ahead, survey data suggest that growth in manufacturing will weaken further in the near term, though parts of the new orders data are more sanguine. Elsewhere, we are confident that construction remained under pressure through Q3, and we see little chance of a rebound until H1 next year. Meanwhile in energy, the sustained crash looks like mis-measurement thanks to an increasingly quick transition towards renewables that is not adequately captured by the headline energy index.

"We reckon that production fell by 0.3% month-to-month in September, which would equate to a 1.1% quarter-on-quarter fall in Q3, somewhat “better” than the 1.5% slide in Q2, but not enough to change our view that the economy probably was in a technical recession in Q2 and Q3."

Capital Economics economist Andrew Kenningham said that while the 0.3% jump in July comes as a relief, especially given that factory orders published on Monday declined by 0.6% month-on-month, this is unlikely to mark a turning point.

"Admittedly, the breakdown was encouraging as production excluding construction and energy (which tend to be volatile) rose by a healthy 0.7% m/m. An increase in output of intermediate and capital goods more than offset a decline in production of consumer goods.

"However, it is likely that industrial production will have fallen in Q3 as a whole. Even if output were unchanged in September, this would leave production down by nearly 1.0% q/q, enough to subtract 0.2%-points from GDP and a fifth successive quarterly decline.

"And in practice, we suspect that output fell again in September: after all, the manufacturing PMI dropped to just 41.7 and the expectations component of the Ifo Business Climate Index also fell, to -17, both pointing to production slumping by as much as 8% year-on-year (compared to -4.0% y/y in August)."

Kenningham said that despite the positive news, Germany’s industrial recession looks likely to drag on "for a long time yet" due to the poor global backdrop and because German firms are losing market share.