Economic Indicators

German industrial output falls in August, spurring recession fears


FILE PHOTO: A steel worker of ThyssenKrupp stands amid sparks of raw iron coming from a blast furnace at a ThyssenKrupp steel factory in Duisburg, western Germany, November 14, 2022. REUTERS/Wolfgang Rattay/File Photo

 

By Maria Martinez

BERLIN (Reuters) -German industrial output shrank in August for the fourth consecutive month, the federal statistics office said on Monday, an indication that the sector remains under serious pressure, stoking recession fears.

Industrial production fell slightly more than expected in August by 0.2% compared to the previous month. Analysts polled by Reuters had predicted a 0.1% decline.

The further drop in German industrial production in August was better than it looked as it was driven by volatile components, said Franziska Palmas, senior Europe economist at Capital Economics.

However, she continued to expect high interest rates and falling demand to lead to a further contraction in German industrial output in the coming months.

“This is one of the reasons why we are anticipating German GDP to contract in both the third quarter and the fourth quarter this year,” Palmas said. Two consecutive GDP contractions are defined as a technical recession.

The statistics office revised July production data to a 0.6% decline month-on-month, compared with a provisional figure of a 0.8% drop.

The less-volatile three-month on three-month comparison showed that production was 1.9% lower from June to August 2023 than in the previous three months, the statistics office data showed.

A 2.4% drop in production in construction on the previous month, a 6.6% decline in energy production and a 2.3% fall in the manufacture of machinery and equipment hurt overall performance in August, the data showed.

By contrast, production growth in the automotive industry had a positive impact, posting a 7.6% expansion on the month.

Production in industry excluding energy and construction was up 0.5% in August compared to July, the data showed.

Industrial orders rose by 3.9% in August due to a boost in computing, electronic and optical products, but the outlook for the sector remains challenging, Destatis said.

“Thin order books despite last week’s increase, and high inventories all indicate that German industrial production will continue moving sideways rather than gaining momentum anytime soon,” ING’s global head of macro Carsten Brzeski said.

Germany’s manufacturing sector, which accounts for about a fifth of its economy, remains mired in a downturn.

The HCOB final Purchasing Managers’ Index (PMI) for manufacturing stood at 39.6 in September, far below the 50 level separating growth from contraction.

“Retail sales, exports and industrial production all disappointed in the first two months of the third quarter, suggesting that for the entire economy, the risk of falling back into contraction is uncomfortably high,” Brzeski said.

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