'Scary' German output figures propel recession fears

BERLIN (Reuters) – German industrial output fell more than expected in June, driven by weaker production of intermediate and capital goods, data showed on Wednesday, adding to signs that Europe’s biggest economy contracted in the second quarter.

FILE PHOTO – Employees of German car manufacturer Porsche install the windshield of a Porsche 911 at the Porsche factory in Stuttgart-Zuffenhausen, Germany, February 19, 2019. Picture taken February 19, 2019. REUTERS/Ralph Orlowski

Industrial output dropped by 1.5% on the month – a far steeper decline than the 0.4% fall that had been forecast, figures released by the Statistics Office showed.

“The continued plunge in production is scary,” Bankhaus Lampe economist Alexander Krueger said, adding that a recession in the manufacturing sector was likely to continue due to the recent escalation of the trade dispute between China and the United States.

Both countries are important export destinations for German companies, which means that the tit-for-tat tariff dispute between the world’s two largest economies is also having a disproportionately large impact on Germany.

“The longer this continues, the more likely it is that other sectors of the economy will be dragged down too. Growth forecasts for Germany may be trimmed further,” Krueger said.

In the second quarter as a whole, industrial output fell by 1.8% on the quarter, driven by steep drops in metal production, machinery and car manufacturing, the economy ministry said.

“Industry remains in an economic downturn,” the ministry said.

PRELUDE TO RECESSION

The figures came after German industrial orders on Tuesday exceeded expectations in June, but the economy ministry cautioned that this sector of the economy had not yet reached a turning point.

The German economy is widely expected to have at best stagnated in the second quarter, and sentiment indicators suggest it could shrink in the third as exporters are hit by trade disputes, Brexit uncertainty and a slowing world economy.

The German government expects the economy to grow by a meager 0.5% this year and rebound with a 1.5% expansion in 2020.

Andreas Scheuerle from DekaBank said the industrial output figures suggested the Germany economy contracted by 0.2% in the second quarter after expanding by 0.4% in the first three months of the year.

“We assume that this is the prelude to a technical recession,” Scheuerle added. A technical recession is normally defined as at least two quarters of contraction in a row.

The Federal Statistics Office will release preliminary gross domestic product figures for the April-June period next Wednesday.

May’s production reading was revised down to an increase of 0.1% from a previously reported 0.3% rise.

Reporting by Michael Nienaber; Editing by Michelle Martin and Raissa Kasolowsky



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