Germany’s industrial plunge makes winter recession a possibility

GERMAN industrial production sank by the most in a year – raising the risk that Europe’s largest economy may slip into a winter recession.

Output dropped 3.4 per cent in March, more than the 1.5 per cent decline economists had predicted in a Bloomberg survey. The decrease was especially pronounced in the automotive sector, according to the statistics office. 

While the data arrive with a big lag and more recent releases suggest the economy overall is expanding, the unexpectedly poor manufacturing performance may yet see the first-quarter reading for gross domestic product lowered.

That means Germany could record a recession between October and March after teetering on the edge of one since Russia attacked Ukraine and inflation took off. A preliminary estimate for the first three months of 2023 was for stagnation, following a 0.5 per cent contraction in the fourth quarter. 

Monday’s numbers follow a more than 10 per cent slump in March factory orders, with ING economist Carsten Brzeski pointing to weakness elsewhere too. 

“All German macro data in March plunged,” he said in a report to clients. “Retail sales and exports dropped sharply, and together with today’s industrial-production data, have increased the chance of a downward revision to first-quarter GDP growth.”

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With demand shrinking as consumers prioritise services over goods consumption, manufacturers are still relying on backlogs of work built up during the pandemic. That’s supported production of late, as supply-chain bottlenecks eased. BLOOMBERG