Economy

German Industrial Output Slumps, With Further Production 'Stall' Forecast

The German Institute for Economic Research (DIW Berlin) and the Kiel Institute for the World Economy (IFW) previously forecasted that the national economy of the country would shrink by 0.2% year-on-year in 2023, with Germany already in a so-called technical recession.
Sputnik
Germany registered an industrial production output slump in May, recent figures indicate, with any hopes for prompt economic recovery deemed unlikely by analysts.
In the month of May, output dipped by 0.2% as compared with the previous month, the Federal Statistical Office (Destatis) said. The slide had affected production in manufacturing, energy and construction.
The manufacturing of pharmaceutical products had a strong negative impact on the overall result in May 2023, Destatis emphasized, with output of pharma products and preparations tumbling by 13.1%. When it comes to energy production, it was down 7.0%. However, the production of motor vehicles and motor vehicle parts (+4.9%) to a degree had a positive influence on the overall development.
Previously, economists polled by US and UK media outlets had been cautiously optimistic, expecting industrial production to either rise 0.1%, or stagnate.
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"The country's international competitiveness has already deteriorated in recent years and is likely to deteriorate further," Carsten Brzeski, chief economist at ING, was cited as saying.
Disillusionment regarding future forecasts was shared by Jens-Oliver Niklasch of Germany's LBBW bank. "We may just see stagnation in the second quarter, but much more likely a renewed decline in economic output," the analyst was quoted as saying.
The German Manufacturing Purchasing Managers' Index (PMI) - which accounts for about a fifth of the country's economy - shrank from 43.2 to 40.6 in the month of June, with experts conceding there was a threat of a more extended recession. The contraction of Germany's manufacturing sector was proceeding at the fastest rate in more than three years, data released by Hamburg Commercial Bank (HCOB) showed.
"Conditions in the manufacturing sector have undoubtedly worsened... The HCOB PMI for the manufacturing sector does show that demand for industrial goods is falling sharply and production is declining significantly, especially for intermediate and consumer goods and, for the first time in five months, for capital goods," it stated.
Electric cars of German carmaker Volkswagen are pictured in front of the 'Transparent Factory' (Glaeserne Manufaktur) production site in Dresden, eastern Germany.

Industrial Output to Continue Shrinking

Earlier, figures from the Federal Statistical Office revealed the European industrial powerhouse's economy had entered a technical recession in the first quarter of 2023. Germany's industrial output was set to continue shrinking by 0.2% year-on-year in 2023, the German Institute for Economic Research (DIW Berlin) forecast earlier. Meanwhile the Kiel Institute for the World Economy (IFW) anticipated a year-on-year decline of 0.3% in 2023.
The economic slowdown was to a greater extent caused by disruption of Germany's energy ties to Russia, and the decision of Berlin to join the collective West's sanctions against Russia. Germany, which has been buying Moscow's cheap pipeline gas since the 1970s, considerably slashed purchases of the fuel from Russia in 2022, leaving its small and medium sized enterprises, along with large industries, facing rising costs and ensuing troubles. Destruction of the Nord Stream pipelines on September 26, 2022, made the problem even worse, as it forced Germany to largely shift to expensive liquefied natural gas (LNG) from the United States. Furthermore, billions of euros in military, economic and financial aid for Ukraine - both direct and via European Union institutions - have been sucking the German budget dry.
These factors combined to exacerbate the already unfolding crisis in the country, and contributed to gradual de-industrialization, as per international economic observers. According to the Federal Statistical Office, the nation's gross domestic product (GDP) fell by 0.3% in the first quarter of 2023, with household and government spending plummeting 1.2% and 4.9%, respectively.
The tangible danger of deindustrialization in Germany was underscored by Alexander Rahr, a German political scientist, who told Sputnik that due to "rising prices for energy resources and resources in general, due to the high taxes that exist in Germany, many companies have seriously thought about moving their business to America, where everything is cheaper."
Accordingly, Germany has been paying a hefty price for its recent policies, with its industrialized economy slipping into a recession and its arms and ammunition stockpiles depleted.
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