German industrial production roars back to life in January

Germany's industrial sector roared back to life at the start of the year, registering its best growth since September 2009 on the back of strong gains in the output of cars and in construction.

Industrial output was up by 3.2% month-on-month in January, according to the Office for Federal Statistics.

That easily beat economists' forecasts for a rise of 0.5% over the month and 1.6% year-on-year.

"[Tuesday's report] is quite a blow to all those pessimists who see the German economy falling off a cliff," Dr. Andreas Rees, chief German economist at UniCredit Research wrote in a report sent to clients.

Excluding energy and construction, output was higher by 3.2%.

December's reading on industrial production was revised higher to show a drop of 0.3% over the month, up from a preliminary estimate showing a decline of 1.2%.

Withing the manufacturing sector, production of consumer goods rose by 3.7% in comparison with the month before, that of capital goods by 5.3% and that of intermediate goods by 0.4%.

Dr. Rees pointed out gains in output from the automobile and construction sectors, which sported rises of 7.6% and 7.0% month-on-month, respectively.

Energy output was 0.1% higher and that of the construction sector by 7.0%.

"From a fundamental viewpoint, German companies finally started working off backlog orders. To a lesser extent, the improvement was also caused by a statistical working-day effect at the turn of the year and the mild winter weather (construction). In terms of GDP growth in 1Q16, we stick to our forecast of 0.6% qoq (or 2½% annualized). Going forward, downside risks have recently emerged as flagged by weaker business sentiment (GDP growth 2016: +1.8%).

"In our view, the major risk is that if volatility on financial markets persist companies become more cautious and economic activity (from the second quarter onwards) is indeed getting sluggish. We are therefore in a wait-and-see mode. Stay tuned," Dr. Rees said.