German industrial production slides, govt said to cut forecast

German industrial production fell in January, widely missing expectations, as it was emerged that that the federal government had reportedly lowered internal forecasts economic growth for 2019.

The German government is believed to revised downwards it estimate for annual growth to 0.8%, its second revision this year, when it was reduced from 1.8% to 1%.

Handelsblatt, a daily business newspaper, said it had seen a confidential government document which cited a weakening world economy, escalating trade conflicts and political risks such as Brexit for the revision. The Organisation for Economic Co-Operation and Development also recently reduced its forecast for Europe's biggest economy, and now expects growth of just 0.7% in 2019.

The downward revision coincided with weak industrial production data. It fell 0.8% in January, well below the 0.5% month-on-month increase most economists were expecting.

Energy output jumped 3.6%, due to unseasonably cold weather, while production of consumer goods rose 1.5%, as the car sector started to rebound following a poor end to 2018. Capital goods output, however, was off 2.5%.

The year-on-year rate was down -3.3% against an upwardly revised -2.7% in December.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: “The month-to-month headline was poor, but the significant upward revision to the December headline – from -0.4% to +0.8% – means that the net increase over the two months, effectively zero, is in line with the consensus.”

Vistesen said industrial production in the first quarter was likely to remain “sluggish” but argued that “the room for improvement is clear enough”.

Oliver Rakau, chief German economist at Oxford Economics, said: “Taken at face value, [it is] easy for the doom and gloom factor to claim victory as production fell 0.8%, disappointing expectations of a solid rise and coming hot on the heels of last week’s round of very strong reports out of France, Italy and Spain.

“However, even German industry is showing some hard-to-see green shoots. Perhaps the most important news today is not the disappointing fall in production in January but the sizeable upward revision to the weak December out turn.

“Overall, [the data does not] help the haze of uncertainty over the country’s near-term outlook. For us the positives outweigh the negatives and we continue to expect 0.5% quarter-on-quarter GDP growth in the first quarter. But gloomy surveys make it easy to hold a more negative view and the risks remain tilted to the downside."