German companies increased their production in August four times as much as expected. Industry, construction and energy suppliers together produced 2.0 percent more than in the previous month, as the Federal Statistical Office announced. Economists surveyed by the Reuters news agency had only expected an increase of 0.5 percent. It is the strongest increase in almost a year and a half. In July, production shrank by 1.2 percent.
“The German economy hasn’t slipped into the mud of low water after all,” said KfW economist Sebastian Wanke. The low water levels in the Rhine, which have persisted since mid-July, are affecting transport by inland shipping and are therefore putting a strain on production. According to estimates, industrial production in particular will be dampened by more than one percent in a month with 30 low-water days, according to the Kiel Institute for the World Economy (IfW).
Construction industry with a significant increase
The positive development in August is primarily due to higher production in the construction industry: This grew by 9.3 percent compared to the previous month. "Within the construction industry, the area of specialized construction activities and finishing trades is particularly noteworthy, with an increase of 13.1 percent compared to the previous month," explained the statisticians. Energy production, on the other hand, fell by 0.4 percent.
Industry alone produced 0.6 percent more. Mechanical engineers reported a particularly strong increase of 5.3 percent. However, the renewed decline in the automotive industry of 5.4 percent had a negative impact - this is at least partially explained by the industry's usual factory holidays, which fell in August.
“That’s a good number from the battered German industry,” said Commerzbank chief economist Jörg Krämer, commenting on the development. The bottom line is that the industry benefits from increasing defense spending, but also from increasing digitalization and the trend towards artificial intelligence (AI). “This development shows that the boom around AI and data centers has also reached Germany,” said KfW expert Wanke.
Order books well filled
For the industry, the chances of a revival in the coming months are not bad: the order books are now more full than ever since the statistics began in 2015.
However, there was a setback in August: the loss of large arms orders caused German industry to experience a sharp drop in orders. New business shrank by 10.6 percent compared to July, the most since January.
Exporters are also more optimistic
The fact that production increased overall in August in the face of ongoing risks such as low water on the Rhine and the crisis in the Gulf region increases the chances that the German economy will grow for the fourth quarter in a row in the summer. Especially since German exporters are also raising their growth forecast after a surprisingly robust first half of the year.
The Federal Association of Wholesale, Foreign Trade and Services (BGA) predicted that exports will increase by 1.0 percent this year despite a slump in business with China. In January, only an increase of 0.6 percent was expected. As previously expected, imports are expected to increase by three percent.
"German foreign trade is stabilizing, but we are still a long way from a turnaround," said BGA President Dirk Jandura: "The decline in our exports to the USA and China in particular shows how volatile the situation remains."
