German industrial output rose more than expected in January, driven by strong demand for machinery, cars and other capital goods, suggesting Europe's biggest economy started into 2017 on a solid footing despite the threat of rising protectionism. The figures, published by the Economy Ministry on Wednesday, gave some reassurance that Germany's economic upswing is likely to continue after data on Tuesday showed that industrial orders posted their biggest monthly slump in eight years.
"Industrial production is back on track," Bankhaus Lampe economist Alexander Krueger said, adding that factories would push up overall economic growth in the first quarter of 2017. In another positive sign for increased business activity, a survey from the Ifo economic institute showed on Wednesday that industry companies plan to hike investment by 5 percent this year after an increase of roughly 3 percent in 2016.
Ifo head Clemens Fuest said Germany's domestic demand remained strong and there were also positive signs for exports. "So we expect this economic upswing to continue for the time being," Fuest told n-tv televison, adding that US President Donald Trump's protectionist plans could pose a threat for German exporters only in the medium term.
Industrial output jumped 2.8 percent on the month, the data showed. This was the strongest monthly increase since August 2016 and overshot the consensus forecast in a Reuters poll for a 2.5 percent rise. The December reading was revised up to a fall of 2.4 percent from a previously reported 3.0 percent drop. January's increase was driven by a 3.7 percent rise in manufacturing output, with demand for machinery, vehicles and other capital goods jumping 6.1 percent - the strongest monthly increase since August 2013. Construction production fell 1.3 percent while energy output edged down 0.7 percent, the data showed.
"The cold winter weather is still taking its toll on the construction sector, which shrank for the second month in a row," ING economist Carsten Brzeski said. "Given the cold February, the negative trend in the construction sector could continue another month before returning as an important growth driver for the entire economy." The Economy Ministry said the rise in January was above the average development in the fourth quarter, adding that sentiment surveys signalled a positive business climate, meaning the industrial upswing is likely to gain further momentum. Bankhaus Lampe's Krueger gave a more cautious outlook. "The tailwind from industry for overall economic growth will ease significantly after the first quarter of 2017," he said.