Weak construction, car industry woes push down German industrial output

BERLIN: German industrial output fell unexpectedly in January as winter weather slowed construction and semiconductor shortages held back production in the car industry, suggesting that Europe's largest economy got off to a weak start this year.

Data from the Federal Statistics Office showed on Monday that output in the industrial sector, including manufacturing, construction and energy, was down 2.5% on the month. A Reuters poll had forecast an increase of 0.2%.

The December figure was revised up to 1.9% from a previously reported unchanged reading.

The drop in January, which ended an unusually long series of eight consecutive months of increases, was driven by a plunge of more than 12% in construction. Manufacturing output fell by only 0.5%, the ministry said.

"Despite the measures taken to contain the pandemic, output in manufacturing posted only a small decline in January which was mainly due to semiconductor shortages in the automotive industry," the economy ministry said.

Machinery manufacturers recorded a noticeable increase in output, it added.

"The further outlook for the industrial sector remains neutral for the time being," the ministry said. Strong foreign demand was offset by weak domestic demand caused by measures to contain the COVID-19 pandemic, it said.

Solid exports and construction helped the German economy to grow by a better-than-expected 0.3% in the final quarter of last year, more then offsetting a lockdown-related drop in household spending.

But Carsten Brzeski from ING said the industrial output data suggested it would be hard for industry to prevent the entire economy from falling into contraction once again.

"The sharp drop in activity in the construction sector ... doesn't bode well for the coming months," Brzeski said.

Most economists expect the economy to shrink in the first quarter, then rebound in the second.

Recent German data has painted a picture of a two-speed economy in which export-oriented manufacturers are doing well while domestically driven services are suffering under lockdown measures imposed in early November and tightened in mid-December to contain a second wave of coronavirus infections.

Industrial orders data released on Friday showed orders for German-made goods rose by twice as much as expected in January as the foreign demand more than offset domestic weakness.

Retail sales tumbled more than expected in January as the COVID-19 lockdown and the withdrawal of a temporary cut in sales tax hit consumer spending.

A gradual easing of coronavirus curbs in the following weeks is likely to help household spending, which should boost overall economic output in addition to manufacturing.

A survey showed last month that consumer morale brightened heading into March as shoppers became more optimistic the lockdown could be eased soon.