Summary:
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German industrial production comes in far below expectations in December
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German economy might have registered two consecutive quarters of GDP contraction
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Economic sentiment in the Eurozone softens as well
GDP contraction on the cards
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Create account Try a demo Download mobile app Download mobile appThe industrial production data released from Germany this morning turned out to be really awful signalling that the German economy might have entered a technical recession in the fourth quarter of 2018 defined as two quarters of GDP contraction in a row. Moreover, the factory orders data published on Monday fell short of expectations as well and this figure, and industrial output obviously too, is set to end the past year with a decline.
The German economy might have seen a decrease in GDP growth in the fourth quarter. Source: Macrobond, XTB Research
Industrial production declined 1.9% MoM in November after falling 0.8% MoM in October (a downward revision from -0.5% MoM) in seasonally adjusted terms. Other gauges excluding either construction or both construction and energy saw a substantial drop as well suggesting that the overall deterioration was widespread. Based on industrial and construction data we estimate that GDP might have contracted 0.4% QoQ assuming flat industrial production in December. If so, it would be the first technical recession since 2012/2013 where GDP fell 0.5% and 0.3% in the fourth quarter of 2012 and the first quarter of 2013 respectively. The slowing German economy could entail slower economic growth in Poland at the beginning of 2019 as Germany is the most important Polish exports’ destination.
Sour mood in Europe
Germany is not the single European country where economic sentiment has deteriorated markedly of late. These conclusions can be drawn from PMI readings we are offered every month. Today we got another confirmation of sour mood across Europe. The economic confidence indicator fell to 107.3 in December from 109.5 falling short of the consensus of 108.2. Furthermore, the decline proved to be widespread and captured both industrial (a fall to 1.1 from 3.4) and services (a fall to 12 from 13.4). The indices published by the European Commission are not leading, hence they might serve only as a confirmation (or a negation) of leading indicators such as PMI or IFO. Having the German industrial data for November we may estimate that quite a cloudy economic outlook could extend into the first quarter of 2019. Then, China’s efforts to revive economic growth might begin playing a role and offer some of relief to the European industry sector.
The euro barely reacted to the data we got earlier today with the EURUSD still hovering in quite a narrow range of 20-30 pips. However, the weekly interval suggests that buyers have approached the critical resistance in the neighborhood of 1.1455 where bulls might struggle to head higher. This level also coincides with the 50% retracement of the rally seen between January 2017 and January 2018. The so-called ‘rock-bottom’ support can be localized nearby 1.20. In turn, a breakout of 1.1455 would see the price suring up to 1.18. We remain bullish on the euro in the medium-term seeing lower odds for much higher rates in the US. Source: xStation5
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