March German production data weak, with easing of the energy pain a silver lining

German factory orders (-0.4% mom) contracted whereas the consensus was for a minor expansion in industrial orders. The mom decline in factory orders was driven by some large orders; without those factory orders would have been roughly stagnant (0.1% mom). Industrial production (-0.4% mom) declined less than the consensus expectation (-0,7 mom) but in line with our own expectations.

Although the monthly data trends for both series tend to be very volatile, this week’s figures are consistent with earlier PMI releases indicating the sector remains in recessionary territory. However, we remain of the view that the outlook is improving and activity is bottoming out, albeit not set for a strong recovery. Indeed, on balance since the start of the year, industrial production has edged up. A better macro environment, such as solid construction activity and increasing export volumes, as well as easing energy prices have helped industrial activity in the first quarter. Lower energy prices have also meant energy-intensive industrial firms (some 17% of total industry) have regained some of their competitiveness losses in the past months. This has contributed to an improvement in total industrial production. While not out of the woods yet, headwinds for the German industrial sector are slowly easing.