German industrial production likely to stagnate medium-term as EM crisis takes full effect

Data released on Monday showed that in January, German industry received somewhat fewer orders than in December. Domestic demand fell 1.6 per cent while foreign orders rose 1.0 per cent, with bookings from the euro zone pushing up 7.5 per cent. The data for December was revised up to a drop of only 0.2 per cent from a previously reported fall of 0.7 per cent.

The burden on manufacturing from the crisis in emerging markets has been limited so far as a strong rise in bookings from other euro zone countries cushioned the fall. Data for now do not confirm the recent sharp drop in the Ifo business climate or the purchasing managers' index. But on a longer-term perspective, order intake still rather points to a sideways movement in production, also because the weakness in emerging markets will probably have more of an effect in the coming months.

"Data are surely no sign of a notable and sustainable upturn in German industry. Weakness in emerging markets will probably have more of an effect in the coming months. This suggests that higher GDP growth rates are not in view either." said Commerzbank in a report.