Germany’s industrial contraction in November heightens recession fears

LONDON (ICIS)–Industrial production in Germany contracted month on month in November, raising concerns that the eurozone’s largest economy may have sunk into recession in the second half of the year after the third-quarter’s contraction.

German industrial production fell 1.9% during the month compared to October, according to the country’s Federal Statistics Office, amid weakening exports and a slump in automotive sector demand triggered by the implementation of new emission certifications.

GDP in the country contracted by 0.2% during the third quarter of 2018, and the November production figures point to a deepening industrial decline since then, following the 0.8% month on month drop seen in October.

Year on year, production fell 4.7% in November.

German economic growth is strongly correlated to the health of its manufacturing sector, and industrial production during August and September, in the midst of the third-quarter economic contraction, were stronger than the fourth-quarter numbers so far, growing 0.1% and 0.2% respectively.

Auto sector weakness is only part of problem, with industrial demand weak in general and the last significant uptick in demand taking place more than a year ago, according to analysts at Dutch banking group ING.

“Weaker German industrial production is not only the result of problems in the automotive sector,” said ING economist Carsten Brzeski.

“Since then, industrial production has been treading water, first on the back of supply-side constraints and now more recently on the back of weakening demand.

“Today’s industrial production data has clearly increased the risk of a technical recession in Germany in the second half of 2018,” he added.

Commenting in mid-December, research group Ifo stated that German’s economic boom, triggered in late 2017 by a broad-based western economic rally, had come to an end, being replaced by a cool-down phase, with automotive sector woes expected to continue into this year.

The group issued sharp cuts to its mid-term economic growth forecasts, to 1.5% in 2018 and 1.1% in 2019, compared to earlier estimates of 1.9% for both years.

Private sector growth in the country remained weak in December according to data from IHS Markit released last week, with the composite purchasing managers’ index (PMI) for the country slumping to a 66-month low of 51.6 during the month, a markdown from flash estimates of 52.2.

Despite the economic gloom, order books remain full and capacity levels – which have been high enough to stifle stronger economic growth in late 2018 – has dropped to the lowest levels since the third quarter of 2017, leaving room for recovery in 2019.

“The recent pick-up in orders in the automotive industry and favourable financing conditions in the entire economy also bode well for at least solid industrial and investment activity in 2019,” Brzeski added.

Speaking at a press conference in December, the president of the German chemicals trade group VCI noted that conditions for Germany’s chemicals sector were becoming increasingly bearish in late 2018.

“The sentiment in German chemical and pharma companies is less optimistic towards the end of the year. The current business situation is no longer assessed as positively as in early 2018,” said Hans Van Bylen.

Pictured: Duisburg’s container harbour on the River Rhine, Germany
Source: Hans Blossey/imageBROKER/REX/Shutterstock