German industrial production dips as momentum fades

Germany’s economic momentum stumbled in August, as industrial production in Europe’s largest economy unexpectedly fell back after 3 months of growth, official data showed Wednesday, October 7.

Industrial production declined 0.2% month-on-month in August, compared with a climb of 1.4% in July, federal statistics agency Destatis said. 

The data marks an interruption of the consistent recovery seen since the lifting of pandemic restrictions in the spring, and is well below a forecast increase of 1.5% in an analysts survey by Factset.

“German industry is clearly struggling to gain further momentum,” said ING economist Carsten Brzeski, who called the data a “first setback” for the nation’s economy since the easing of coronavirus lockdowns.

In Germany’s all-important car industry, production fell 12.5% compared with the previous month – partly due to summer shutdowns – and sank to around 25% below the level of February 2020, the month before restrictions were imposed in Germany due to the pandemic. 

Meanwhile, total industrial production in August was down 9.6% compared with the same month a year earlier.

Production will not recover to pre-crisis levels “until well into 2021,” Capital Economics economist Andrew Kenningham said, even though “the outlook is better than in some countries,” helped by export demand and Germany’s generous short-time work scheme, called Kurzarbeit.

“This is the first decline after 3 sometimes sharp rises. You have to take a deep breath,” said Jens-Oliver Niklasch, economist at LBBW.

“The figures for new orders were still quite good, but the production figures show that the closing of the corona[virus] gap is unlikely to happen quite as quickly.”

On Tuesday, October 6, official data showed industrial orders rose in August by 4.5%.

But an increase in coronavirus cases in Germany threatens to nip any recovery in the bud, with the highest number of new infections since April reported on Wednesday.

“Assessing this kind of backward-looking data is like looking at pictures of a great summer holiday; the economic prospects for the final quarter resemble the current view out of the window at 8 am in the morning – gray and rainy,” Brzeski said. – Rappler.com