August 13, 2012
German Q2 GDP, to be released next Tuesday, should have grown by 0.2% qoq. However, the latest data flow was negative: Industrial production and new orders for June were weak, with the deterioration apparent in most sectors. New orders disappointed, coming in more than 7% lower yoy with weakness especially in early-cycle sectors like chemicals and metals. Also, sentiment surveys like the PMI and ifo fell even further in July.
The data indicates that production is unlikely to expand in the coming months, implying further negative yoy-rates. The weakness is not only driven by the austerity-ridden EMU, though, where big ticket orders in May actually resulted in a 1.6% qoq order increase in Q2. Domestic orders fell mom in May and June with lower domestic capital goods orders pointing to an increasing reluctance to invest. So far, other important export destinations have “come to the rescue”. However, DB lowered its GDP forecast for China this week and data from the US remains mixed. The 0.1% qoq drop in industrial output does not bode well for GDP growth. We stick to our Q2 forecast, however, as models based on sentiment and monthly “hard” data give us a range of 0.1% to 0.3% for Q2 GDP. For H2, though, the negative evidence is mounting, creating downside risks to our 2012 GDP forecast of 0.8%.
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