Goldman Blames German Industrial Production Miss On Snow
A key European economic indicator printed earlier today, with Industrial Production coming in at -1.5% on expectations of 0.2%, and a second consecutive negative print, after the former number was revised to -0.6%. This is a confirmation of ongoing European weakness following recent deteriorating data from the export-complex which after all are to be expected considering the EURUSD is held up artificially high courtesy of hopes that various can kicking contraptions by the ECB will buy Europe a few more months of pretend stability. Thus, the trade off is simple: a decline in export activity in exchange for a strong euro giving the impression that things are ok (note the second consecutive week of no sovereign bond monetizations in Europe), and a rising market driven higher in sympathy with what US stocks are doing (even as the US is now supposed to be the growth dynamo of the entire world, which is odd considering that the benefits from the payroll tax cut will start expiring in Q2). And if none of the above makes sense, you always have Goldman, which just blamed it all on, you guessed it, snow.
From Goldman Sachs
As expected, the large negative IP print in December was due almost entirely to the deep weather-related contraction in construction activity (-24%mom). From what we can tell, consensus expectations of a +0.2%mom gain either did not price in the adverse weather impact on the construction sector, or grossly underestimated it.
That said, the remaining major components of industrial production were not particularly robust in December -- manufacturing edged down slightly (-0.1%mom), and we did not see the boost to energy output (it was up a modest 0.3%mom) that one would have expected given the cold weather conditions. In any case, over Q4 as a whole, IP was still up 1.9%qoq, which is slightly higher than the 1.7% gain posted in Q3, when the corresponding growth in GDP was +0.7%qoq. In this sense, the Q4 industrial production figures are broadly in line with the +0.5%qoq German GDP growth we have pencilled in for Q4.
Going forward, we would expect a strong rebound in construction activity in January, as temperatures were milder this past month and, more importantly, snowfall was nowhere near the record levels seen in December. Indeed, the buoyancy of the German business surveys (both the PMIs and Ifo) in January suggest that the sequential momentum of industrial activity remained strong at the start of the year.
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