Gloomy Outlook For German Exports

Germany's exports are the main feature in today's data parade, followed by updates for industrial production in France and Italy. Given the gloomy numbers of late, the outlook isn't sunny.

Germany Merchandise Trade Report (07:00 GMT) Germany's export machine suffered a setback in September and last week's dismal update on industrial production for October doesn't inspire much confidence for thinking positively. For good or ill, the monthly profile of merchandise trade is a critical report for the German economy, which relies heavily on exports for growth. The country's 2011 exports as a percentage of GDP were 50%—the highest in the world that year among the major economies, including China, which ranked substantially lower at 31%, according to the World Bank.

German exports took a beating in September, falling 2.5% from the previous month—the biggest monthly drop so far this year. Analysts interpreted the news as a warning that the fourth quarter would be rough ride for this critical sector and the nation's economy generally. Industrial production's larger-than-expected slump in October certainly doesn't offer a compelling counterpoint. Surveys published last month by Ifo and Markit of manufacturers' expectations for German exports also implied that another round of soft number are coming in today's release.

Granted, the latest numbers aren't universally gloomy for Germany. New orders for manufactured goods surged higher in October by 3.9%, dramatically above the consensus forecast. That's a sign that economic activity may perk up in the near future. But the hard data so far suggests that Germany started the fourth quarter on a weak note.

France Industrial Production (07:45 GMT)
Some analysts expect a modest rebound in industrial output for October, but even if optimism carries the day it will take a hefty upside surprise to wipe away the lingering disappointment from the previous report. September industrial production in France slumped 2.7% vs. the previous month, the biggest decline in more than three years.

Today's production update is also the first since France's Industry Minister Arnaud Montebourg threatened to nationalize a steel plant owned by ArcelorMittal after the firm announced plans to close several blast furnace operations in the country. "We no longer want Mittal in France because they haven't respected France," Montebourg snapped.

Supporters say that the minister's comment will serve as an incentive that will stir firms to keep jobs in France. That's a stretch, to say the least. In any case, Montebourg contentious view of industrial policy ensures that today's October update on production will be analyzed from political as well as economic perspectives.

As for the numbers themselves, September's unusually steep decline implies that October may suffer less on the theory that a generally declining trend in output still comes in fits and starts. The October report for the Markit France Manufacturing PMI Index supports this view, and it posted a slower rate of decline vs. September. But expecting much more beyond a lesser degree of pain still requires an unusually strong dose of optimism, and one that's in short supply for the industrial outlook in France.

Italy Industrial Production (09:00 GMT)
Industrial output in Italy didn't fall as steeply compared with France in September, but economists are expecting that the sector will continue to shrink in October, par for the course at a time when recession has the country by the throat. Italy's 1.5% drop for industrial production in September is the steepest decline in five months.

The red ink is also a reliable clue for expecting that the country's third-quarter GDP revision (scheduled for release today at 10:00 GMT) will reconfirm that Italy is in the grips of recession. (You can read more about that Prime Minister Mario Monti's resignation will mean for Italy in my TradingFloor.com colleague Steen Jakobsen's article.)

National output retreated 0.2% during the three months through September vs. the previous quarter, according to the preliminary estimate. That's a relatively mild drop compared with the quarterly decreases in the first half of the year. Germany and France, by comparison, each managed to post 0.2% GDP growth in Q3.

Forecasts of growth, for either industrial production or GDP, remain MIA for Italy at the moment, however, and today's industrial production figures aren't likely to change the mood for Europe's third-largest economy.