Surprise growth in August for Germany's manufacturing sector

Germany's manufacturing sector did better than expected in August, with industrial production up 1.4 per cent, following expections at 1.0 per cent, and rising from -1.1 per cent (revised from -1.7 per cent) for July.

Ben May, European economist at Capital Economics, comments:

Despite the sharp rise in production in August, the German industrial sector will provide the wider economy with a slightly smaller boost in Q3 than Q2... If production was flat in September, it would rise by about 0.7% in Q3 as a whole, a bit weaker than Q2’s rise of 1.3%. Based on this, the sector might reduce overall GDP growth by about 0.2pp in Q3, after the 0.7% quarterly gain seen in the previous quarter. Encouragingly, surveys of industrial activity are consistent with a further pick-up in the near term – the manufacturing PMI suggests that the annual growth rate could rise from August’s +0.3% to about +4%. But data published yesterday showed that German industrial orders contracted for a second month running in August, suggesting that the surveys may be providing an overly optimistic picture. In all, then, further evidence that the industrial sector looks set for steady rather than spectacular growth.