German industrial output surges

German industrial production strengthened in January, official data showed on Tuesday, beating expectations.

According to Destatis, Germany's Federal Statistics Office, production rose 2.7% in January from December, the highest rate since late 2020, or by 1.8% against January 2021. Most analysts had been expecting month-on-month growth closer to 0.5%.

Industrial production for December was also revised sharply upwards, to 1.1% compared to Destatis’s earlier estimate of a 0.3% decline.

The production of consumer goods rose 4.0% in January, capital goods by 1.2% and intermediate goods by 0.3%.

Energy production eased by 0.1%but construction - boosted by unusually mild weather during January - rebounded from a 7.3% slump in December, with production ahead 10.1%.

Stripping out energy and construction, production in industry was ahead 1.3%.

TD Securities said: "Construction helped drive the gains, with all but the energy sector in expansion territory this month. Easing supply constraints likely helped drive some of the resurgence in activity."

However, Russia’s invasion of Ukraine was expected to weigh heavily on Germany’s economy going forward.

Carsten Brzeski, global head of Macro at ING, said: "Economic data in January underlined the German economy’s solid start to the new year, confirming the view of a strong rebound in course of the year on the back of fading Covid restrictions and improving supply chains.

"Needless to say, the war in Ukraine has changed everything.

"Instead of a strong rebound, the German economy is facing a very uncertain future, and the risk of outright stagflation is increasing by the day. Germany’s dependence on Russian oil and gas is common knowledge. The sheer impact from higher prices, and the increases since the start of the year, should shave one percentage point off GDP growth this year - and this is without any supply disruptions."