German industry slows stoking fears of recession

German industrial output fell further than expected in June - by as much as 1.5% - intensifying fears that recession could be looming for Europe’s biggest economy.

The sector’s slowdown is generally being attributed to the ongoing, escalating trade war between the US and China, which is affecting international demand, but also on the slowing global economy, and uncertainty caused by Brexit.

Germany’s economy depends heavily on its manufacturing sector, and is also unusually export-reliant. As such, it has been particularly hard-hit by recent global troubles.

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In particular, “analysts blamed the slump largely on a decline in sales of machine parts and cars to China and the far east, where falling currency values have made imports more expensive”, the Guardian says.

Maeva Cousin, an economist for Bloomberg, said: “This is consistent with the industrial sector trimming 0.6 percentage point off GDP growth in the second quarter. With industrial weakness likely to persist in the third quarter, it risks spilling over into the services sector and causing a sharper slowdown in Germany’s economy.”

Reuters analysts had predicted a fall of 0.4% before Germany’s Statistics Office released the figures yesterday.

“The continued plunge in production is scary,” said Alexander Krueger, an economist for Bankhaus Lampe, quoted by Reuters. “The longer this continues, the more likely it is that other sectors of the economy will be dragged into this. Growth forecasts for Germany are likely to be trimmed further.”

The news comes a day after positive statistics were released on German industrial orders in June. As Reuters reports, “Contracts for ‘Made in Germany’ goods rose 2.5% from the previous month, the biggest increase since August 2017… driven by an 8.6% increase in demand from non-euro zone countries. That was supported by bookings for big-ticket items.”

However, according to Andrew Kenningham, chief Europe economist at Capital Economics, the latest bad news “kills off any hopes that the strong orders data published yesterday marked the beginning of a recovery. Business surveys uniformly point to a further contraction in July, so things look set to get worse rather than better”.

Commerzbank Chief Economist Joerg Kraemer told CNBC on Tuesday that “there are the first signs that the one-and-a-half year weakness in the export sectors is starting to affect the labour market. I expect after shrinkage of second-quarter German GDP (gross domestic product), I can imagine that in the third quarter we might see a slight decline in GDP.”