Germany’s manufacturing sector is suffering its steepest downturn for a decade after industrial production fell 1.7 per cent in October, underlining how the powerhouse of the eurozone’s biggest economy is spluttering.
The figures, published on Friday by the Federal Statistics Office, mean that Germany’s manufacturing output has fallen 5.7 per cent in the year to October and indicate that the sector is likely to keep weighing on overall eurozone growth in the fourth quarter.
Combined with data published this week showing industrial orders fell sharply in October and most manufacturers expected a further shrinkage in November, there are few signs that the two-year downturn in German manufacturing is close to ending.
“Far from bottoming out, Germany’s industrial recession may be getting worse,” said Andrew Kenningham at Capital Economics. “The latest data support our view that a recession is still more likely than not in the coming quarters.”
Germany’s export-focused economy has been hit by the US-China trade war, uncertainty over Brexit and a sharp decline in the car industry, which has been disrupted by new emissions rules and the shift to electric vehicles.
The drop in German manufacturing in October was concentrated in production of capital goods, including tools, buildings, vehicles, machinery and equipment, which fell 4.4 per cent in the month. Production of intermediate goods and consumer goods both increased.
In the traditionally more volatile areas outside of industry, energy production rose 2.3 per cent while construction output fell 2.8 per cent.
“Looking ahead, both soft and hard indicators bode ill for industrial activity in the months ahead,” said Carsten Brzeski, economist at ING. “Production expectations show very tentative signs of stabilisation at low levels but order books are still shrinking and inventories remain high.”
The German economy grew 0.1 per cent in the three months to September, narrowly avoiding a recession as higher household and government spending and a rebound in exports helped to offset a decline in industrial production.
But there are fears that the crisis in the manufacturing sector will spill over into the services industry and start to hit both Germany’s labour market and consumer confidence. This is increasing pressure on the government in Berlin to ditch its commitment to a balanced budget and to spend more money.
There was a worrying sign of consumers pulling back in October when eurozone retail sales fell 0.6 per cent, with Germany having the sharpest decline of minus 1.9 per cent along with Ireland, according to figures published this week.
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