German industrial production increased for a second month, underpinning hopes that Europe’s biggest economy may soon emerge from a shallow recession it probably witnessed in the last six months. 

The gauge increased 2.1 per cent in February, led by construction, the statistics office said on Monday (Apr 8). That was better than predicted by any economist in a Bloomberg poll. 

Despite this month’s increase, overall production is still well below pre-pandemic levels, an illustration of the challenges Germany’s important manufacturing sector had to endure since then – including a surge in energy costs following the war in Ukraine. 

Most recently, it’s also been weighed down by weak foreign demand, high borrowing costs and uncertainty about the direction of economic policy.

“German industrial data points to end of stagnation in the first quarter,” said Carsten Brzeski, global head of macro at ING. “With two months of hard data for the first quarter, there is finally a reason for moderate optimism that at least the cyclical downswing has come to an end.”

Data of late have been mixed. On Friday, factory orders showed a slight increase, but only due to volatile large items. Business surveys by S&P Global meanwhile pointed to deteriorating industry momentum in March. 

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Business confidence measured by the Ifo institute as well as ZEW investor expectations both improved last month, however. Behind that were prospects for interest-rate cuts by the European Central Bank that’ll probably start in June and and an improvement in global conditions. 

Economists polled by Bloomberg expect the German economy to shrink 0.1 per cent in the first quarter, following a 0.3 per cent drop in the final three months of last year. A new model by Bloomberg Economics suggests a more benign outcome, putting the likelihood of recession at just above 30 per cent. BLOOMBERG