German IP Growth Crawls Higher; Slowly I Turn, Inch by Inch, Step by Step...

German IP is on the brink of a sea-change with the new German focus on rearming and increased military spending. Still, that is in planned-policy; it will take a while for it to be reflected in actual economic performance and in economic data. For now, the trend tells us what is in train, but we should expect a marked improvement IN TREND in the future.

The sector trends year-over-year show that the declining way of output still mostly holds sway, but that year-over-year output declines have been getting smaller and smaller. Consumer goods output growth is now showing positive growth year-over-year.

Monthly growth rates Monthly IP growth rates by sector are all positive in January, a sharp contrast with December when output fell sharply across sectors, except output of consumer goods. Manufacturing orders show drops in January and November with a rise in December sandwiched in between.

Sequential German growth rates German IP is showing accelerating growth rates from 12-months to 6-months to 3-months overall and for all sectors except for capital goods, where output is back-tracking at a 2% annual rate over three months. Real sales are also accelerating sequentially, but real orders show strong deceleration. Normally this would be a situation of a coming grim reality since orders lead sales and output. But since we know military spending is going to become stimulative, we have a reasonable expectation that the weakness in orders will fail in this case to be a harbinger for future output and sales.

German indicators German indicators show mostly improvement month-to-month; the IFO manufacturing expectations series is the exception in January. And sequentially the industrial surveys are still on weakening trends: the ZEW current, IFO for manufacturing, IFO manufacturing expectations, and EU Commission industrial index.

Other Europe Other European economics in the EMU offer an array of experiences for industrial production performance and trends in January. Among the six early reporters in the EMU for other Europe in the table, three show output increases in January, three also in December, and three in November. Their sequential performances in terms of growth rates over 12 months to 6 months to 3 months show France and Spain logging declines on all three horizons. The Netherlands shows increases on all horizons. Three countries show persistent deceleration: France, Spain, and Ireland. The Netherlands shows persisting acceleration. Two non-EMU reporters, Sweden and Norway, also show persistent acceleration.

Summing up Germany’s sea-change in view on miliary spending will change the direction of growth in Europe and also impose more hostile conditions for inflation affecting ECB policy. Germany will not stand alone in making this change. This is just the start. The quarter-to-date is cropping up to show persistent gains for German IP by sector although for other Europe most EMU members are showing IP declines. The Dutch are an exception, and the Northern European economies of Sweden and Norway also are exceptions. Conditions in Europe continue to show a good deal of variation. But as soon as the miliary spending kicks in Europe, it will be on a much more synchronized upswing.