In the context of the existential crisis that historically leading German industry is going through, production data for the month of August initially call for optimism. However, when we dig deeper, we quickly see that the underlying situation remains complex and that a strong recovery is still far away. THE energy crisis derived from the war in Ukraine – goodbye to cheap Russian gas -, the changes in business dynamics -the Chinese “friend” is already buying less- and the cycle of high interest rates They have caused damage that cannot be repaired quickly, as we see in particular in the automobile sector, a true jewel of German industry and today in serious difficulty.
He 2.9% month-over-month increase German industrial production in August was much better than expected (consensus: +0.8%) and followed a drop of 2.9% in July. The increase in production is largely explained by a monthly increase of 19.3% in automobile production, which fell sharply in July, and which, according to the press release from Destatis, the German federal statistical agency, “fluctuates considerably from one month to the next.” Production in energy-intensive industries, which has increased in recent months, rose 0.1% month-on-month, but remains 13% below its pre-Ukraine war peak. The construction sector continues to bottom out with a third consecutive month of weak growth.
“The sharp increase in German industrial production in August This is no reason to celebrate.as this was barely enough to compensate for the sharp decline of the previous month. The general picture remains that of moderate industrial production and unflattering outlook for the sector” said Franziska Palmas, senior economist at Capital Economics in a note to clients.
Despite the sharp increase in production in August, the general outlook remains difficult for German industry, Palmas insists. In August, remember, production was still 7% below the most recent peak, reached in February 2023, and the short-term outlook is poor. Surveys on manufacturing activity, he continues, point to a contraction in industrial production in the months to come. Likewise, the new industrial orderswhich fell 5.8% over one month in August, data published this Monday, are at one of their lowest levels since 2013.
“Later, several structural challenges will continue to weigh on production, such as high energy prices, slowing Chinese demand for German industrial products and the auto sector’s difficulties in increasing its production of electric vehicles. The result is that the industry will continue to weigh on the German economy for a while,” Palmas ventures.
“Currently, any data that is not negative is considered positive news for the German economy, and this morning’s industrial data is no exception. However, today’s rise is not a sign recovery, but rather a technical rebound after the sharp decline in July”, which underlines that the economy remains stagnant. In view of the specific data available for the first two months of the third quarter, the risk of another negative quarter remains high“, agrees Carsten Brzeski, chief economist of ING’s research department, in his general view in a report following the industrial data.
Brzeski (ING): “Germany is caught between cyclical and structural headwinds and is finally realizing that the old macroeconomic model based on cheap energy and large, easily accessible export markets no longer works”
For the ING analyst, regular “doctor” of the German economy, industry is the best example of the problems of the entire economy in recent years: “Stuck between cyclical and structural headwinds and finally realize that the old macroeconomic model based on cheap energy and large, easily accessible export markets no longer works.
Five years after the start of the pandemic, Brzeski specifies: German industrial production remains 10% below pre-pandemic levels. Manufacturing capacity utilization is as low as that recorded during the financial crisis and early lockdowns, painting a gloomy picture for a nation known as an industrial powerhouse.
“At the risk of sounding like a broken record: in the fall of 2024, The German economy is in the same situation as a year ago: Eurozone growth is lagging with few signs of imminent improvement. The cyclical hope that supported the German economy in the first months of the year has disappeared, mainly due to a weakening of the global economy, but also fears of a cooling of the American economy, “persistent geopolitical tensions and domestic political uncertainty,” writes the ING analyst.
The context is anything but optimistic. The growing number of insolvencies and individual company announcements on upcoming job restructuring They continue to hang like a sword of Damocles over what has been one of the few bastions of the economy in recent years: the labor market, Brzeski explains.
To make matters worse, he adds, recent negative news from the German auto industry highlights continued structural and cyclical problems: “Unfortunately, this risks exacerbating negative sentiment, creating a vicious cycle Perfect”.
“Looking ahead, there are very few indications that the current situation will change substantially in the near future. We hope that private consumption and the evolution of the inventory cycle will provide some relief They are still alive, but This is probably more of a 2025 story than a 2024 story.“, says the expert.
