Germany’s industrial output drops sharply in April

LONDON (ICIS)–Fresh data from Germany indicated on Friday that the country’s industrial production fell 1.9% month on month in April, a significantly larger decline than analysts had projected.

Aside from a modest 0.2% uptick in the construction sector’s growth, government statistics agency Destatis noted declines across all other industrial categories during the month, following a 0.5% month on month uptick in March.

Production of capital goods dropped 3.3% in April, while consumer and intermediate goods output also fell. Excluding energy and construction the overall slump deepened to 2.5%.

The bearish numbers represent “quite a setback” for Germany’s second-quarter economic growth hopes, according to think tank Oxford Economics, after a turbulent half-year for the country amid “horror-show” manufacturing sector performance.

“The German industrial sector is clearly still having trouble to recover fully from last year’s woes, as global trade remains subdued and the thread of US protectionism weighs heavily, with the data today [Friday] suggesting that industrial activity will very likely fail to provide a positive contribution to GDP in Q2,” said Oxford’s senior economist Daniel Harenberg.

The country narrowly dodged a return to recession in the fourth quarter of 2018, when growth stood at 0.0%, and the weaker industrial and trade numbers indicate that first-quarter momentum may already be ebbing away, according to analysts at banking group ING.

“Let’s be clear, this is a horrible start to the second quarter for German industry, as global trade tensions as well as temporary problems in the automotive sector and chemical industry have left their marks,” said ING analyst Carsten Brzeski.

“One-off factors should have disappeared by now and even turned into temporary positives. Yet the experience of the last few years shows that there is almost always another disruptive one-off factor waiting around the corner,” he added.

The precariousness of Germany’s economic momentum indicates that the European Central Bank (ECB) monetary policy committee may be correct to hint this week at openness to slashing interest rates even further than their current historic lows in future.

The bank held its key interest rate levels on Thursday and held back from injecting any new quantitative easing funds into the eurozone system, but was “as dovish as it can get without actually engaging in new action,” Brzeski said.

The uncertainty comes despite unchanged ECB forecasts for the eurozone economy, with policymakers even upgrading growth projections for 2019 to 1.2%, but the destabilising influence of Brexit and trade fears continues to cast a pall over the system.

“It will probably only take a small economic slip for the ECB to cut rates,” he added.

Germany’s chemicals trade group VCI has not responded to a request for comment at the time of writing.

Pictured: New cars parked in Dortmund, Germany
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