German Industrial Output Recovers; Retail Sales Unexpectedly Fall

(RTTNews) - Germany's industrial production rebounded at a stronger-than-expected pace in January, but retail sales unexpectedly fell again indicating that private consumption could act as a drag on economic growth this year.

Industrial production grew 3.5 percent on a monthly basis to offset the revised 2.4 percent decline in December, data from Destatis revealed Wednesday. Output was forecast to grow 1.4 percent.

The overall growth was solely driven by intermediate goods output. Production of intermediate goods surged 6.9 percent on the back of strong growth in the manufacture of chemicals and electronic equipment.

By contrast, production of consumer goods decreased 1.8 percent and capital goods output slid 0.6 percent.

Excluding energy and construction, industrial production moved up 1.9 percent in January, data showed.

Energy output gained only 0.4 percent and construction output registered a strong 12.6 percent increase.

The year-on-year decline in industrial output halved to 1.6 percent from 3.3 percent in the previous month.

In January, retail sales dropped by real 0.3 percent from the previous month, Destatis said separately. This was in contrast to the expected growth of 2.0 percent. Retail turnover fell 6.9 percent from the same month last year.

The big rebound in industrial production suggests that industry may continue to hold up well in the face of the energy crisis, Capital Economics economist Franziska Palmas said. Nonetheless, the renewed drop in retail sales pointed to ongoing weakness in consumption, the economist added.

As such, the industrial resilience would not be enough to prevent a recession, Palmas noted.

The latest industrial production data brings some welcome relief but is no reason to cheer as it is only a correction of the December plunge, ING economist Carsten Brzeski said.

Private consumption looks set to be a drag though industry could become a mild growth driver in the first quarter, the economist added.