German industrial production beats expectations in February

German industrial production increased more than expected in February, according to figures released by Destatis on Friday.

Industrial production was up 0.7% on the month compared to a revised flat reading the month before and beating expectations for a 0.5% rise. January's reading was revised up from an initial estimate of a 0.8% drop.

On the year, output was down 0.4% compared to a revised 2.7% decline in January.

The data showed that production in industry excluding energy and construction was down 0.2% on the month. Within industry, the production of capital goods rose 0.6%, while the production of intermediate goods was up 0.6% and consumer goods output increased 1.6%.

Outside industry, energy production was down 3.1% and the production in construction was up 6.8% in February.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the figures look great but make no sense relative to Thursday's terrible new orders numbers.

"Either of the two will revised down, or production will swing sharply to the downside in coming months," he said.

"Construction explains part of the discrepancy, jumping 6.8% month-to-month, probably thanks to a relatively warm February, which followed an unusually cold January. We suspect that lots of projects stood still in January, but that they progressed by leaps and bounds in February. The flip-side to this story is that energy production fell, thanks to lower output by utilities. Even looking beyond these distortions, however, the core manufacturing data look oddly solid compared to the new orders numbers."

Vistesen added: "Normally, we have a pretty good read on Q1 at this point, but everything now depends on the March report. Factoring-in a sharp fall, 2.5-to-3.0% month-to-month, in line with the new orders data, we arrive at a quarter-on-quarter rate of -0.4%, better than the -1.1% in Q4. That said, revisions and next month's data are a wild card."

Jack Allen, senior Europe economist at Capital Economics, said that while the data was stronger than expected and suggests that German GDP rose in the first quarter that is largely due to a sharp increase in construction that is very unlikely to be repeated.

"The manufacturing sector is still struggling and showing no signs of improvement heading into Q2," he said.