In the face of weak incoming orders for the past one and a half years industrial companies had reined in their production sharply at the end of 2012 in order to reduce bulging finished goods inventories. The steepest slide was seen in the car industry, with output down by around 8% on the previous quarter. The weakness in industrial orders resulted from both domestic as well as foreign demand.
In the meantime, however, foreign demand has firmed up markedly. In the fourth quarter 2012 new orders from abroad were 2.5% up on the preceding quarter. Moreover, business surveys show that firms now view their stocks of finished goods as more appropriate again. As a result, industrial production is likely to pick up in the first quarter 2013. We therefore expect to see a return to sequential growth of around 0.5% in the opening quarter of 2013.
Despite the weak growth at the end of last year the labor market has been remarkably stable. The number of people in work rose slightly further in the fourth quarter. Compared with the fourth quarter 2011 an increase in (price and working-day adjusted) gross domestic product was accompanied by an 0.8% increase in the number of people in work. Put differently: productivity per employee fell slightly over the year. In phases of weak economic activity this is not worrying per se. However, productivity per employee in Germany in 2012 was still lower than it was five years ago. So the poor trend in productivity has been fairly protracted. A key factor behind this is likely to have been subdued investment activity, which fell again last year. It is to be hoped that, in 2013, not only the widely expected export upswing sets in but also a marked pickup in investment. Given the let-up in the debt crisis, companies’ restraint on the investment front is likely to ease. Whether this develops into a sustained investment upswing also hinges on the economic policy backdrop.