Germany suffered its steepest drop in industrial production since April 2020 as supply bottlenecks hit Europe’s biggest economy, data released today has confirmed.
Industrial production, including construction, was down by 9% month-to-month in August as compared to pre-pandemic levels in February 2020 – a shortfall primarily due to weakness in the automobile-production sector.
Production of consumer and intermediate goods fell by 2.6% and 2.4%, respectively. Energy output jumped by 4.1%, partially reversing weakness in the previous two months, while construction production fell by 3.1%, after a 2.5% increase in July.
The year-over-year rate dropped to 1.7% from the 6.0% revised figure in July, below the consensus estimate of 5.0%. Net revisions to the month-to-month data were +0.3pp. Both figures were well below the analysts’ expectations of a 0.5% fall.
Today’s figures, branded “whopping” and “terrible” by analysts at Newcastle upon Tyne, UK–based economic research consultancy Pantheon Macroeconomics, led to a revised forecast downwards for the third quarter.
Claus Vistesen, Pantheon’s chief eurozone economist, said: “In one line: Ugly. This is a terrible headline, but it is slightly better than we had feared based on yesterday’s revelation that industrial sales plunged by just under 6% on the month. The upward revision to the July number helps too, a bit.”
Vistesen added: “The headline was stung by a 7.8% month-to-month slide in production of capital goods – driven mainly by a 16% crash in production of motor vehicles. With conditions having worsened since August, Germany’s manufacturing problems threaten to keep the economy as a whole well below its pre-pandemic level until next year.
“Crucially, most forecasts did not assume such a sharp decline in the industrial sector before this week’s data – ours certainly didn’t – which means gross domestic product (GDP) growth forecasts for the third quarter will have to come down.”
Vehicle production drop
The fall in industrial production was largely due to a whopping 17.5% month-on-month drop in production of vehicles and vehicle components.
Capital Economics’ chief Europe economist, Andrew Kenningham, pointed out: “The latter left auto production more than 40% below its pre-pandemic level as many auto firms seem to have ceased production altogether.”
Commenting further on the problems, he added: “Business surveys and media reports suggest the key problem is still the shortage of components – particularly, but not only, semiconductor chips.
“Meanwhile, the surge in gas prices in recent weeks has created new problems, which do not bode well for the final quarter.”
Following today’s disapointing data, the analysts sounded careful notes and revised forecasts.
Said Kennington: “Germany should still post a big increase in GDP in the third quarter due to the reopening of the services sector, but its quarterly growth may fall short of the 2.5% quarter-on-quarter figure we are forecasting. And prospects for the fourth quarter have deteriorated significantly.”
“For the year as a whole, we anticipate GDP growth of around 3%, whereas the consensus is 3.5%.
Vistesen said: “Looking ahead, the key story in these data is their implication for the third-quarter GDP report. Factoring in a 1% rebound in September, we now think production fell by 2% quarter-on-quarter in the third quarter, enough to shave off 0.4–0.6pp from quarter-on-quarter GDP growth.
“We now look for third-quarter quarter-on-quarter GDP growth of 2%, down from 2.4% previously, driven by a further rebound in services consumption.
“Looking into the fourth quarter, production in autos will snap back at the start of the quarter, but will likely remain depressed overall due to supply-side woes. The energy crunch is a risk too, threatening voluntary or forced production outages.”