Germany: Industrial production contracts in November as worries over a technical recession grow
Industrial production fell 1.9% over the previous month in November, a sharper drop than the revised 0.8% month-on-month contraction in October (previously reported: -0.5% month-on-month). The headline figure—which marked the third consecutive monthly drop in output and sharply contrasted market expectations of a small rebound—came on the tails of a broad-based deterioration: Production of capital goods, intermediate goods, consumer goods and energy fell, while activity in the construction sector also shrunk.
Compared to the same month a year earlier, industrial output shrank a whopping 4.7% in November and contrasted a revised 0.5% expansion in October (previously reported: +1.6% year-on-year). Lastly, annual average growth in industrial production moderated to 1.8% in November from 2.7% in October.
While recent data seemingly suffered from the troubles in the automotive sector, the recent slump is broader based. In fact, Carsten Brzeski, chief Germany economist at ING, added that since late 2017 “industrial production has been treading water, first on the back of supply-side constraints and now more recently on the back of weakening demand.” Lingering global uncertainties are seemingly starting to affect the German economy, as the trade spat between the United States and China intensified and Brexit fast approaching without much clarity over the future trade relationship.
The stream of disappointing data in the second half of 2018 has given rise to stronger worries over a technical recession in the final two quarters of last year amidst slower global activity. The effects of external uncertainty have hitherto been relatively offset by domestic demand, although private consumption contracted in the third quarter, and “private and public consumption still have the potential to offset recession forces”, Brzeski noted. Moreover, “even a technical recession should be nothing to be too worried about […] there are still plenty of reasons to remain optimistic, even for German industry.”