martedì 8 dicembre 2009

German industrial production highlighted uncertainty surrounding Eurozone recovery

Following the unexpected drop in October’s German factory orders (the data was released Monday 7), today’s figure for October’s German industrial production came in as a wakeup call for the believers in a strong recovery in the Euro zone economy. Industrial production fell by 1.8% m/m, versus the +1% m/m expected by the consensus. Manufacturing output fell 1.6% in October, driven by a 3.5% m/m drop in production of investment goods, energy production declined 3.4% m/m and construction output dropped 2.4% m/m. The annual change is -12,4%.

While the upward trend in IFO business confidence index indicate that industrial production may resume a growth path in the next few months (the December figure due for publication on December 18 will give more hint on German economic outlook), the growth rate is likely to weaken as the measures to stimulate growth will wane. The decline in German industrial production in October is also a negative signal for French and Italian data due for publication on Thursday 10.

Today’s data confirmed that, albeit the last week ECB’s decision to remove some long term extraordinary refinancing operations, the ECB is likely to leave rate unchanged at 1% for a long time. We do not pencil in a rate hike by the ECB before the end of H1 2010 as the ECB is very unlikely to do anything that could further strengthen the Euro.

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