German Industrial Output Drops
Data Raises Concerns Third-Quarter Growth Will be Minimal
The figures, the second piece of downbeat economic data from Europe’s largest economy in as many days, showed that factory output in adjusted terms fell 4% on the month—the sharpest decline since 2009.
The fall was well below analysts’ expectations of a 1.5% decline, according to a survey conducted by The Wall Street Journal.
Germany’s economy ministry also reduced its July figure to growth of 1.6% from the 1.9% gain originally reported.
The data came a day after a surprise decline of 5.7% in manufacturing orders for August—also the sharpest since January 2009, when the world was mired in financial crisis. Though orders data don’t translate immediately into production numbers, Monday’s data release amplified concerns about Germany’s growth outlook.
The German economy is “likely to have stagnated at best,” in the third quarter, said Ralph Solveen, an economist at Commerzbank. CBK.XE -1.63% Following a 0.6% annualized decline in the second quarter, a contraction in the third quarter would meet a common definition for a recession, namely two consecutive quarters of economic decline.
Tuesday’s data were weak across the board, with manufacturing output down 4.8% and construction output down 2.0%. Energy output eked out a gain of 0.3%.
The ministry tried to put a good face on the numbers, saying that special factors such as the timing of summer holidays depressed the figures, and there is little doubt that the headline figure exaggerates the picture to some extent. For example, output in capital goods fell 8.8%. The ministry attributed this drop to a 25.4% decline in auto sector output. Experts said this likely could be attributed to factory closures because of school holidays.
Still, the trend in output is troubling. Output was on average in July and August 0.7% below the second quarter average, which was 1.1% below the first quarter average.
The “decline confirms our expectation that [gross domestic product] will probably not grow much in the second half of the year, even if the decline in business confidence triggered by Russia’s aggression in Eastern Ukraine were to end in the coming months,” said Berenberg economist Christian Schulz. “A significant rebound in manufacturing and thus investment is unlikely to come through before early 2015.”
Other analysts said Tuesday’s output data didn’t bode well for Germany’s GDP figures.
“August industrial production data implies clear downside risks to our 0.2% [quarter-on-quarter] Q3 GDP growth forecast for Germany,” said Evelyn Herrmann at BNP Paribas.