Brandenburg Gate in Berlin, Germany

Germany Industry August 2019

Germany: Despite rebounding industrial production in August, the outlook remains grim

Industrial production rose 0.3% month-on-month on a seasonally- and calendar-adjusted basis in August, swinging from a revised 0.4% drop in July (previously reported: -0.6% month-on-month). As the print came in above a market consensus of a small drop, it provided some respite for the battered German economy.

A robust expansion in output of intermediate goods and capital goods drove August’s rebound; however, consumer goods output fell. Moreover, energy production and construction activity both decreased noticeably.

Over the past year, industrial output fell 4.0% in August, down from July’s revised 3.9% drop (previously reported: -4.2% year-on-year). This marked the 10th consecutive month in which annual industrial production decreased. Consequently, annual average industrial production fell 2.6% in August, down from the 2.3% drop in the prior month.

Commenting on the result, Peter Vanden Houte, Chief Eurozone economist at ING, noted that “the jury is still out on whether we can really talk about a trend reversal.” This is in part due to the fact that German industrial production tends to be volatile over the summer. Moreover, combined with previously released data regarding the state of the sector, “a real recovery still looks some time away”, Vanden Houte added.

Dr. Andreas Rees, Chief German economist at UniCredit, concurred, noting: “there is certainly no reason to give the all-clear but to breathe a sigh of relief at least. After all it has not become even worse in the already battered German industrial sector.” However, Dr. Rees noted that “the likelihood of a technical recession in the overall economy […] is still significant.”

Overall, the outlook for the German industrial sector and the economy at large remains shrouded in dark clouds. The recent decision by the World Trade Organization to allow the United States to impose tariffs on European goods poses a significant downside risk to the German goods-producing sector and by extension the wider economy. These tariffs could come into effect as early as 18 October. In addition, the Trump administration is expected to decide whether or not to levy tariffs on European cars next month, which poses further downside risk to the outlook.

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