German industrial output falls to 2005 levels as auto sector craters
German industrial production fell back to 2005 levels in August as output in the country’s all-important car industry cratered by 18.5 per cent compared with the previous month.
The unexpectedly poor data comes as German Chancellor Friedrich Merz is set to meet the bosses of the country’s carmakers on Thursday in Berlin to discuss the woes of the struggling sector. Merz has promised to reinvigorate the Eurozone’s biggest economy but has so far fallen flat.
Overall, industrial production fell 4.3 per cent in August compared with the previous month, seasonally adjusted data showed on Wednesday. Economists had predicted a smaller drop of 1 per cent in a Reuters poll.
Excluding short and temporary shocks during the global financial crisis and at the peak of the Covid-19 pandemic, the data indicates industrial production is at the weakest level since 2005. It is almost 20 per cent below its pre-pandemic peak. Car production outside of those two crises is at the lowest level since 2000.
Industrial production was “dropping like a stone,” ING’s global head of macro Carsten Brzeski wrote in a note to clients, adding that the risk of Germany falling back into a technical recession with two consecutive quarters of GDP decline had increased.
Claus Vistesen, chief Eurozone economist at advisory firm Pantheon Macroeconomics, called the industrial data “ugly” but noted that one-off effects had distorted the figures slightly.
According to the German statistical office, the “sharp decline” in car production was in part caused by the later timing this year of annual closures at car plants for holidays, as well as production changeover.
But a profit warning by German carmaker BMW late on Tuesday was the latest reminder of the industry’s structural challenges as it struggles with the transition to battery cars, weak sales in China and US import duties.
Germany’s economy has been stuck in stagnation for more than three years.
Merz is trying to revive growth through a massive debt-funded public spending plan but the economy shrank 0.3 per cent in the second quarter as its export-dependent manufacturing sector reeled from global trade tensions.
“Today’s [industrial] figures are a further indication that the German economy hardly grew at all in the third quarter,” said Commerzbank economist Ralph Solveen.
The German government said on Wednesday that it expected increased domestic demand to drive improvements in the economy from next year.
It is now forecasting GDP to grow by 1.3 per cent in 2026 and 1.4 per cent in 2027, from 0.2 per cent this year. It had predicted in January 0.3 per cent growth this year and 1.1 per cent next year.
The more positive economic outlook “should not obscure the fact that a significant portion of growth in the coming years is likely to come from high government spending”, German economy minister Katherina Reiche said.
“But even this stimulus will only have an effect if investments are implemented quickly,” she added,