German industry unexpectedly shrinks amid recession threat

GERMAN industrial output fell for a fifth month in October – adding to evidence that Europe’s largest economy is on track for a recession.

Production declined 0.4 per cent from September, led by the machinery and equipment sector, the statistics office said on Thursday (Dec 7). That defied economists in a Bloomberg survey who had predicted a 0.2 per cent gain.

The outcome highlights Germany’s growth struggles following an energy-induced crisis last winter. Gross domestic product shrank 0.1 per cent in the three months through September and analysts predict another contraction of that size this quarter, leaving a recession as a real possibility.

Manufacturers – Germany’s economic backbone – are particularly affected by expensive energy, higher interest rates and weak global demand. Several big industrial firms have started cutting costs, and chemical maker BASF plans to reduce investment by almost 15 per cent over the next four years.

Data earlier this week showed that factory orders declined more than expected, further dimming the outlook for a recovery. The budget turmoil in Berlin is also weighing on Germany’s outlook.

Still, recent surveys suggest some stabilisation. The Ifo institute’s business outlook last month reached a six-month high. A poll of purchasing managers, meanwhile, highlighted “considerable weakness,” though easing conditions support a return to growth.

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German industry isn’t alone in showing a bad start to the fourth quarter. France and Spain saw similar declines earlier this week, and Italian data due later on Thursday also are expected to drop.

If enduring and reflecting more broadly, that could raise the prospect of a recession in the wider euro region after GDP there shrank in the three months through September, and recent surveys show the downturn in the euro area has continued in services and manufacturing. BLOOMBERG