German industrial production rises less than expected

German industrial production rose less than expected in April, according to figures released on Wednesday by Destatis.

Production increased by 0.7 following a 3.7% decline in March, coming in below expectations for a 1% rise.

On the year, industrial production was 2.2% lower in April following a 3.1% decline a month earlier.

Production in industry excluding energy and construction was up 0.3% in seasonally and calendar adjusted terms. Within industry, the production of capital goods rose 0.9% and the production of intermediate goods by 0.4%. Consumer goods production fell 1.3%.

Outside industry, energy production was up 16.1% on month, after declining by just under 11% in March. Production in construction was down by 2.1% on the previous month.

Andrew Kenningham, chief Europe economist at Capital Economics, said the increase in industrial production in April reversed only a fraction of the decline in March and suggests that the damage from high energy prices, the Ukraine war and ongoing supply shortages will not be resolved anytime soon.

"We expect industrial production to be a drag on GDP growth in the second quarter," he said.

He pointed out that output in April was still more than 2% below its level a year earlier and 6.7% below its pre-Covid level in February 2020.

"Business surveys point to a further increase in output in May: for example, the Manufacturing Output PMI rebounded to above the 50-mark and the Ifo Business Climate Index also rose," he said. "Nonetheless, these surveys remained weak by past standards and suggest that any recovery in production will be slow-going.

"More generally, the latest German data have been a little stronger than we had anticipated which suggests that there are upside risks to our forecast for the economy to contract by 0.3% q/q in Q2. But we think growth will fall short of the consensus forecast of +0.7% q/q and expect headwinds to get stronger in the third and fourth quarters."