German outlook brightens as industrial output rises

German industrial output rose for the first time for five months in December, data showed on Thursday, adding to evidence that sharply rising confidence is gradually feeding through into the real economy, analysts said.

Industrial production increased by 0.3 percent in December from the November level, making up for a 0.2-percent contraction the previous month, the economy ministry said in a statement.

While energy output declined by 3.4 percent and construction output was down by as much as 8.9 percent, manufacturing output rose by 1.2 percent, driven by a 4.2-percent increase in production of consumer goods, the ministry calculated.

"As expected, industrial output was weak in the final quarter of last year, even if it showed signs of stabilisation," the ministry wrote.

"However, an upturn in industrial orders, combined with sharp improvements in confidence indicators, suggest the current period of weakness will come to an end in the foreseeable future," it said.

The day before, the ministry had calculated that industrial orders increased by 0.8 percent month-on-month in December, propelled by overseas demand for German-made goods.

Analysts said the data suggested that the recent sharp rises in industrial confidence in Europe's top economy is not just wishful thinking.

Even if the modest headline increase in output "is no reason to become overly enthusiastic, today's industrial production data indicate that the industrial slowdown has come to an end," said ING Belgium economist Carsten Brzeski.

"In fact, it provides further evidence that the outlook for the German economy has brightened," he said.

Jennifer McKeown at Capital Economics agreed.

The data "do not alter the likelihood that gross domestic product fell sharply in the fourth quarter of 2012, but do add to signs that the economy entered 2013 in a better state," she said.

The national statistics office Destatis has estimated that the German economy contracted by around 0.5 percent in the final quarter of 2012, as the fallout from the sovereign debt crisis pushed growth into reverse.

But observers are confident the pause in growth will prove short-lived.

"Germany seems to be in for a V-shaped rebound after the weak fourth quarter," said Berenberg Bank economist Christian Schulz.

Nevertheless, the strengthening euro could soon begin to weigh on German exports, the country's traditional growth engine, economists warned.

"We expect 2013 to be a challenging year for Germany's economy," said Natixis economist Constantin Wirschke.