Industrial output in Germany expanded strongly in May, rising by 1.2% mom, which more than made up for April's 0.8% decline. The trend in manufacturing is stronger still, with a 1.2% gain in May after a contraction of just 0.3% in April. Hence, in the first two months of Q2 industrial output was up 1.1% from the Q1 average, and manufacturing up 1.7%. Clearly this points to upward risks to predictions that the economy suffered a soft spot in Q2, and our 0.2% qoq forecast for GDP is looking a bit low.
The strength of recent industrial data (orders, output) is remarkable and defies predictions that Europe would be discernibly affected by the disasters in Japan, even if only briefly. The hard data are also in some contrast to survey evidence which indicated weakness, though different surveys suggested quite different degrees of weakness. The PMI output index for manufacturing, for example, dropped 4.7pt in May and another 3.5pt in June (June level 55.5), but the ifo survey was more benign.
If there was one sector where component supply disruptions were expected to hit production, it was the automobile sector (and electronics). But according to the IP report, production of motor vehicles (including trailers) rose 7.0% mom in May, after a small decline of 1.1% in April. This latest gain has put automobile production clearly above the pre-crisis level.
More generally, the gain in manufacturing was driven by capital goods (2.5% mom), supported by intermediate goods (0.7%) and consumer durables (0.5%), while output of consumer non-durable stagnated.
There was also strength beyond the manufacturing sector, with a 1.1% mom gain construction. Although this came after a 5.0% decline in April, the level still appears extraordinarily elevated. We continue to expect declines in this sector, but are becoming less sure these will materialize.
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