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Sunday, December 17, 2006

German Output and Exports

This is more like working notes than an analysis, but just to point out two things about the October data:

Firstly German industrial output fell in October:

German industrial production fell unexpectedly in October, with construction and energy output hardest hit, but economists said the data were probably a blip and that the outlook for the fourth quarter remained good.

Output declined in October by 1.4 percent month-on-month in seasonally adjusted terms, undershooting all forecasts, preliminary Economy Ministry data showed on Friday....

The output drop, the second monthly fall in succession, comes two days after data showed German manufacturing orders unexpectedly declined by 1.1 percent in October.

On the other hand:

The output figures contrasted with trade data from October released earlier on Friday. These showed Germany’s trade surplus hitting a record high, driven by strong demand for goods from around Europe, but especially from outside the European Union.

Indeed October seems to have been a really good month for German exports:

German exports unexpectedly rose for a fifth month in October, suggesting sales in Asia will help Europe's largest economy cope with a U.S. economic slowdown.

Exports climbed 2.6 percent from September, when they gained the most in more than four years, the Federal Statistics Office in Wiesbaden said today.

And just look at this:

Exports climbed 23 percent in October from a year earlier, with sales to countries outside the European Union jumping 31 percent, according to the statistics office.....Germany's trade surplus rose to 17.3 billion euros ($23 billion) in October from 15.6 billion euros a month earlier, the statistics office reported. Imports slipped 0.2 percent from the previous month.

The explanation for the difference between the industrial output performance and the strong export position is of course two fold:

1) In the first place there is a structural transition away from manufacturing and into services taking place.

2) In the second place domestic consumption still remains weak. October retail sales actually FELL year on year. In terms of my ageing society analysis this is hardly surprising:

German retail sales declined slightly in October, confounding expectations of rising consumer sentiment, according to government figures released Thursday.

Sales declined by 0.2 percent from September to October adjusted for calendar and seasonal effects, the Federal Statistics Office said. Compared with October 2005, sales declined by 0.8 percent.

So assuming that some of these sales were actually being brought forward from 2007 - to avoid the VAT rise - I'm really not sure I can agree at all with Sebastian Dullian at Eurozone Watch Blog when he says Honey, I shrunk the German VAT shock, since my feeling is that this is going to turn into a much bigger deal than most are imagining, and that when the shouting is all done, we will look at tax hikes as a means of addressing deficit problems in a very different light.