German Industrial Recession Worsens as Trade Uncertainty Bites

(Bloomberg) --

German industrial production unexpectedly declined further in July as trade tensions and waning business confidence continued to weigh on global demand.

Output fell 0.6% from June, missing economist estimates for a slight gain. The numbers point to further deterioration in the outlook for Europe’s largest economy, with production down 4.2% on the year and declining factory orders signaling that no turning point is in sight.

The U.S. and China hit each other with a new round of import tariffs this month, the latest in a spiraling trade drama with grave consequences internationally. While officials from the world’s two largest economies have agreed to reconvene on trade in October, skepticism remains on both sides that substantive progress can be made.

The euro zone has been mired in a manufacturing-led slowdown for more than a year, with Germany on the brink of recession.

“Industrial momentum remains weak,” the economy ministry said in a statement Friday. In light of the soft start in the second half and the absence of a recovery in orders, no improvement in the industry trend is in sight.”

In July, investment-goods production and energy output slumped while consumer goods and construction improved.

The numbers come on the heels of a report on Thursday that showed factory orders plunged in July. The nation’s jobs market is still holding up though, with a separate report on Friday showing labor costs rose 0.8% in the second quarter.

The European Central Bank’s Governing Council will meet next week to set monetary policy, with expectations for further cuts to interest rates and renewed asset purchases running high. A number of officials have expressed their opposition to the latter, raising the question of how forceful President Mario Draghi’s final stimulus push will be before his term ends in October.

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