German Dec industrial production falls unexpectedly

German industrial production fell more than expected in December, down 1.6%, compared with expectations of a 0.4% decline, increasing the risk of a downward revision to fourth-quarter GDP.

The figure compared with a 0.2% fall in November. On an annual basis, industrial production was down 3%.

There was a severe decline in the chemical industry, with production falling by 7.6% on the month, and in construction, with a 3.4% decline. However, there was a 4% increase in automotive industry production.

"German industry remains stuck between cyclical and structural weakness, said ING analyst Carsten Brzeski. "Production in energy-intensive sectors plunged by almost 6% month-on-month. The December weakness in industrial production was spread across all sectors except for the automotive industry."

"The sharp drop in both exports and imports, as well as today’s industrial production, not only illustrates the weakness of the German economy’s backbone but also increases the risk of a downward revision of fourth-quarter GDP growth."

"Looking ahead, yesterday’s industrial orders data – even if blurred by several one-off factors – as well as the gradual turning of the inventory cycle, sent an encouraging signal that at least the cyclical part of German industrial weakness is bottoming out."

Brzeski added that "Germany wouldn’t be Germany these days if there weren’t new problems weighing on the short-term outlook".

He cited strikes by train drivers, airport and airline personnel, and supply chain disruptions as a result of the military conflict in the Red Sea, which meant another contraction in first-quarter GDP "even more likely".

"The recent drop in production expectations points exactly in that direction...but the recent increase in industrial orders brought at least some vague light at the end of what increasingly looks like a very long tunnel."

Reporting by Frank Prenesti for Sharecast.com