Germany’s industrial production declined 1.3% vs. an expected decline of 0.2%. Last month industrial production declined a revised 0.7%.
Data is for March and February so the reports are about as timely as US GDP releases. Nonetheless, let’s take a look.
Bloomberg reports German Industrial Output Falls for Second Month as Demand Cools.
German industrial production declined more than expected in March, a second consecutive drop that could signal slackening demand in Europe’s largest economy.
Production, adjusted for seasonal swings, fell 1.3 percent from the prior month, when it dropped a revised 0.7 percent, data from the Economy Ministry in Berlin showed on Tuesday. Economists in a Bloomberg survey had predicted 0.2 percent decline in the typically volatile gauge. Output rose 0.3 percent from a year earlier.
Slowing global growth has led the German economy to rely increasingly on domestic demand, bolstered by record-low unemployment. Yet business confidence deteriorated last month and the Bundesbank said that it expected slowing momentum in the second quarter amid global headwinds such as a slowdown in China.
Construction fell 3.2 percent from February, while intermediate goods declined 1.3 percent. Output of investment goods fell 1.4 percent and consumer goods slid 0.2 percent. Manufacturing fell 1.2 percent. Energy gained 0.3 percent.
New orders were up. Economists expect a rebound. Is this just another soft patch?
Mike “Mish” Shedlock
Exports are far more important to the German economy than to any other country. Exports account for roughly 50% of GDP versus say, the low 20’s for China! So declining industrial production has a large impact on both Germany and its eastern European supplier countries (i.e. CZ Republic, Slovakia, Poland). A 5% drop in German industrial production is a deep recession.
Everything is slowing down and there is nothing anyone can do about it. Policies of the last thirty years have resulted in anemic growth for the last ten years.
Sounds like an inventory build-up is happening.
Sounds like as predicted once the Russian sanctions were indorsed by Germany their output would slow. There you have it!
Volkswagen Diesel emissions are falsified. Deutsche Bank is up to its neck in fines for corrupt practices. Siemens is violating Russian sanctions. Bribery is a deductible business expense under German tax law. Odds are the Economy Ministry in Berlin is painting a rosier picture than the reality. Dry Ships facing bankruptcy is the reality of trade.
euro (against $US) has been gaining strength since March
German industry in general, is very much optimized for an environment of rapid global growth in both output and debt. There is very little in the way of hedges, if the above falters.
Almost all things German are focused on being “best in class.” Which people aspire to when things are good. But when they’re less so, many more are willing to settle for 95%.
In the EU, much of German dominance in end user markets, have come by way of making the best of the best, then getting regulatory bodies to put in place codes and requirements that bans anything less than the very best. It’s very obvious wrt emissions and safety requirements of cars. And also wrt building regulations concerning energy use etc.
And, to double down, the only way non German producers of end user goods can hope to compete with the Germans, is by buying German produced capital goods and subcomponents. Pushing German exports to the far corners of the world, to anyone hoping to export to the EU, and in many cases any other first world, market.
Thing is, lots of the sales have been debt funded, and once debt growth slows, many traditional customers will be forced to settle for something just a little bit less cutting edge than what the CEO of BMW may fancy as being “correct”. Throwing a monkey wrench into the whole German industrial monoculture of either “Uber Alles” or “untermensch.”
Japan was in a similar position 25 years ago, but their industrial giants have now gone a lot further down the road towards less singular dependence on the highest of the high end in everything.