German industry is simply not gaining momentum. The ailing automotive industry in particular is causing production to collapse. But the statistics also offer some rays of hope.
German industry did not pick up in July either. The latest data on industrial production confirms sceptics who expect a recession. According to the Federal Statistical Office, production fell by 2.4 percent month-on-month, and the year-on-year decline was 5.3 percent. On the other hand, official data on German exports were positive, with a calendar and seasonally adjusted value of 130 billion euros in July, 1.7 percent higher than the previous month of June.
“It is becoming increasingly clear that the German economy will stagnate this year,” says Deutsche Bank economist Robin Winkler, and others. The German Institute for Economic Research (DIW) has revised its economic forecast for the current year downwards.
Instead of a slight growth in gross domestic product of 0.4 percent, economic researchers now expect stagnation of zero percent because private consumption is not picking up either. “The hoped-for recovery in industry that we had at the beginning of the year has not materialized,” said DIW economic chief Geraldine Dany-Knedlik.
The German economy shrank slightly by 0.1 percent in the second quarter – now it is threatening to fall back into recession. Economists have little hope for the current year.
Institutes lower forecasts
Three leading economic research institutes had already significantly reduced their forecasts. The Munich-based Ifo Institute and the Leibniz Institute for Economic Research in Halle (IWH) also expect zero economic growth for this year, while the Leibniz Institute for Economic Research in Essen (RWI) expects 0.1 percent.
According to the statistics office, the drop in production in July is due to weak development in the automotive industry. The 8.1 percent decline in the industry compared to the previous month has had a strongly negative impact on the overall result. This means that industrial companies have suffered another setback after the increase in June. Hopes are resting on the recent increase in orders, which can partly be attributed to individual large orders.
Exports to China and USA weak
German companies did export more goods in July. However, German exporters, who are also found in the ranks of industrial companies, had to cope with a decline in exports to China and the USA. Both countries are important sales markets for the automotive industry in particular. “Weak exports to China in particular are putting a heavy burden on German industry,” says Thomas Gitzel, chief economist at VP Bank. His forecast is also that “industrial production will hardly be able to increase significantly this year either.”
One should not be fooled by the positive export development in July, says the President of the Federal Association of Wholesale, Foreign Trade and Services (BGA). “Exports to non-EU countries fell again. And this for the third time in a row. We urgently call on the government to conclude new free trade agreements in order to strengthen our economic model.”
ECB could cut interest rates
Sebastian Dullien from the trade union institute IMK is betting that the European Central Bank will provide a boost to the economy in the coming year by falling key interest rates. “Falling interest rates should provide some relief in the coming year. In addition, wages are likely to continue to rise in the foreseeable future, leading to a little more consumption despite ongoing uncertainty.” Nevertheless, the recovery will be cautious. One important reason for the reluctance to consume and invest in Germany is the uncertainty people have felt due to the federal government’s financial policy.
Communication Destatis Production 7/2024
Source: Stern
