Growth in German industrial output beat all forecasts in January, underpinning hopes the upswing in Europe's largest economy has not been severely disrupted by a rise in sales tax this year.
Preliminary figures released by the Economy Ministry on Thursday showed output rose 1.9 percent on the month in January in seasonally adjusted terms, boosted by a record jump in manufacturing output. The increase was the third in a row.
The ministry said the figures suggested a three percentage point increase in value added tax (VAT) on January 1 had not had as severe an impact on the economy as many had feared. "These are fantastic figures, without question," said DekaBank economist Andreas Scheuerle in Frankfurt.
"The mild weather strongly stimulated construction output, but also slowed energy production. What is astounding is that manufacturing is so strong," he added. "That is especially linked to the strong foreign demand for capital goods."
The Reuters consensus forecast was for a 0.5 percent gain, with no economist tipping a rise of more than 1.2 percent. But as manufacturing orders unexpectedly fell in January, analysts said output could easily cool in coming months. Germany enjoyed its strongest growth in six years in 2006 and industry surveys show the mood in the corporate sector remains upbeat, with new hiring and investment set to rise.
Dresdner Kleinwort economist Rainer Guntermann said latest data suggested the economy would grow some 0.3 percent in the first quarter of this year, and by 2.1 percent in 2007. The economy has been led by a strong export performance which analysts say has profited from marked wage restraint.
Figures earlier on Thursday showed growth in German labour costs slowed to an adjusted 0.1 percent quarter-on-quarter during the final quarter of 2006, its lowest level in a year. Carmaker BMW on Thursday raised its dividend after reporting strong 2006 profits. Group earnings before tax rose 25.5 percent to 4.124 billion euros ($5.4 billion).
A breakdown of the output numbers showed manufacturing production rose 2.2 percent on the month, led by a sharp increase in demand for capital equipment. Figures from the Bundesbank show that January's annual gain in manufacturing output - 8.9 percent - was the biggest on record since German reunification in 1990.
Amid unusually mild weather, construction output jumped 4.1 percent on the month, while energy production fell 2.9 percent. December's monthly output change was revised up to a gain of 0.1 percent from an originally reported fall of 0.5 percent.
Goldman Sachs economist Dirk Schumacher said the January output rise was particularly impressive given this revision. "The big reduction in inventories in the final quarter of 2006 already suggested there was scope for a catch-up," he said. However, he added that with manufacturing orders dipping in January by 1.0 percent, a slowdown in output could well follow.
German gross domestic product growth accelerated to 0.9 percent in the final three months of last year despite the negative impact of a massive liquidation in inventories.
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