German Industry Suffered Worst Annual Drop in a Decade in June
German Industry Output Falls as Factories Suffer From Trade Woes
(Bloomberg) --
German industrial production registered its biggest annual decline in almost a decade, highlighting the severity of the trade-inflicted manufacturing slump in Europe’s largest economy.
Output was down 5.2% in June from the previous year, the most since late 2009, when the country was recovering from the Great Recession that followed the global financial crisis. The numbers are the latest in a series pointing to a quickly deteriorating outlook that’s also starting to affect the labor market.
The U.S. and China have stepped up their fight over import tariffs in recent days, bringing the world closer to fully fledged trade war that will also have grave consequences for Germany and the 19-nation euro area.
Trade uncertainty and slowing global growth have already hit German factories in recent months and forced industrial giants including Daimler and Continental to lower their profit outlook. Companies have announced job cuts, and unemployment started to increase.
Industrial production dropped 1.5% in June from the previous month, driven by an even steeper decline in manufacturing. The sector “remains mired in a downturn,” the Economy Ministry said in a statement Wednesday, adding that a disappointing performance in the second quarter was primarily due to weakness in metal, machinery and car production.
What Bloomberg’s Economists Say
“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.”
--Maeva Cousin.
Read the full GERMANY REACT.
The numbers come on the heels of a report on Tuesday that showed factory orders increased in June. The ministry cautioned though that the sector hadn’t yet reached a turning point.
The Bundesbank predicts the economy contracted in the second quarter, and receding confidence among companies and investors is feeding speculation that Germany may be headed for a recession. A first estimate for the April-June period will be released on Aug. 14.
Germany’s weakness is damping momentum in the euro area. The European Central Bank is reviewing monetary stimulus measures including further cuts to interest rates and renewed quantitative easing to prop up the region’s economy.
--With assistance from Kristian Siedenburg, Harumi Ichikura and Catarina Saraiva.
To contact the reporter on this story: Kristie Pladson in Frankfurt at kpladson@bloomberg.net
To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow, Craig Stirling
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