The German federal statistics agency has announced that German industrial output decreased in August for the fourth consecutive month, a sign that the industry is still experiencing significant pressure and fuelling concerns about an impending recession.

When compared to the prior month, industrial production decreased by 0.2% in August, which was a little more than projected. Reuters polled analysts who expected a 0.1% drop.

According to Franziska Palmas, senior Europe economist at Capital Economics, the additional decline in German industrial production in August was better than it appeared because it was driven by volatile components.

She nonetheless maintained her expectation that a combination of high interest rates and weak demand would cause a further decline in German industrial output in the upcoming months.

“This is one of the reasons why we are anticipating German GDP to contract in both the third quarter and the fourth quarter this year,” Palmas said. Two consecutive GDP contractions are defined as a technical recession.

The statistics agency downgraded July’s production data from a tentative 0.8% reduction to a 0.6% month-over-month decline.

According to data from the statistics office, production decreased 1.9% between June and August 2023 compared to the preceding three months in the less volatile three-month on three-month comparison.

The data showed that August’s overall performance was hampered by a 2.4% decrease in construction output from the previous month, a 6.6% decrease in energy production, and a 2.3% decrease in the production of machinery and equipment.

The automotive industry, in contrast, saw a positive effect from production growth, with a month-over-month increase of 7.6%.

The report revealed that production in the non-energy and construction industries increased by 0.5% in August over July.

Due to an increase in computing, electrical, and optical items, industrial orders increased by 3.9% in August, but Destatis said the sector’s prognosis is still dim.

“Thin order books despite last week’s increase, and high inventories all indicate that German industrial production will continue moving sideways rather than gaining momentum anytime soon,” ING’s global head of macro Carsten Brzeski said.

Germany’s manufacturing industry, which makes up approximately 5% of its economy, is still experiencing a slowdown.

The manufacturing HCOB final Purchasing Managers’ Index (PMI) for September was 39.6, significantly below the 50-point threshold that separates expansion from contraction.

“Retail sales, exports and industrial production all disappointed in the first two months of the third quarter, suggesting that for the entire economy, the risk of falling back into contraction is uncomfortably high,” Brzeski said.

(Adapted from Barrons.com)

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