German industrial production declines on car manufacturing

GERMAN industrial production dropped in July – highlighting the underlying troubles of Europe’s largest economy after it unexpectedly shrank last quarter.

Output decreased 2.4 per cent from June, worse than predicted by a single analyst in a Bloomberg survey. Automotive was the main driver, though most sectors were down, the statistics office said.

Germany’s economy contracted by 0.1 per cent in the second quarter – dashing hopes that it can finally leave behind years of stagnation. The fact that Volkswagen is considering unprecedented factory closures in its home market adds to the gloom.

On Thursday, the Ifo Institute lowered its forecasts for this year and next significantly. It now expects zero growth in 2024 instead of 0.4 per cent before and only 0.9 per cent in 2025, compared with 1.5 per cent previously. 

The Kiel Institute for the World Economy is even more pessimistic, saying this week that it sees gross domestic product shrinking 0.1 per cent this year – following a 0.3 per cent contraction in 2023.

Data earlier this week revealed an unexpected increase in German factory orders in July. Still, the advance was due to large-scale orders, without which the gauge would have slipped. 

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German economy set to stagnate this year, Ifo institute says

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Meanwhile, trade data – published on Friday – showed a boost in both exports and imports in July, matching the direction predicted by economists. 

Bundesbank President Joachim Nagel said on Tuesday that the contraction in spring must be a “wake-up call” and that “current company reports make it clear that certain sectors are under pressure.”

A recovery in the manufacturing sector is key to reviving Germany’s economy, but so far there are no signs of a real turnaround – adding to concerns that its troubles are more structural than temporary. BLOOMBERG