German Industrial Production Shrinks for Fourth Month

German industrial output fell for a fourth month in August as factory weakness weighs on Europe’s biggest economy.

(Bloomberg) — German industrial output fell for a fourth month in August as factory weakness weighs on Europe’s biggest economy.

Production declined 0.2% from July, led by construction and energy, the statistics office said Monday. Economists in a Bloomberg survey had estimated a fall of 0.1%. The index for output recorded its lowest level this year.

Poor demand from China, worker shortages, high interest rates and the lingering fallout from last year’s energy crisis have hurt factories in Germany and in turn its economy as a whole. Gross domestic product probably contracted 0.1% in the third quarter and may shrink as much as 0.6% in 2023 as a whole.

“The situation is serious and the mood in our industry is bad,” said Markus Steilemann, president of the chemical association that represents the likes of BASF SE and Evonik Industries AG. He pointed to a survey that showed production in the chemical sector continues to fall due to cratering demand and high energy prices.

Today’s industrial production data are in line with last week’s readings for exports, which dropped more than anticipated in August. Still, factory orders showed a partial rebound in the month.

What Bloomberg Economics Says…

“The fourth consecutive decline in industrial production does not bode well for the German economy in the second half of this year. In the face of tighter financing conditions, weak global demand and higher energy prices, GDP is likely to have shrunk in the third quarter and might grow only marginally in the final quarter of 2023.”

—Martin Ademmer, economist. For full react, click here

The latest evidence of Germany’s economic malaise comes amid increasing frustration with Chancellor Olaf Scholz and his ruling coalition. Voters in the western states of Bavaria and Hesse, who make up about a fifth of the electorate, dealt the three parties in Scholz’s alliance a stinging blow in regional elections Sunday, potentially disrupting government business at the federal level.

“The government coalition in Berlin has taken an enormous blow,” said Carsten Brzeski, global head of macro at ING. “These results can either lead to a full reset of the political agenda in Berlin or to a de facto standstill.”

European Central Bank President Christine Lagarde has acknowledged that the weakness of the German economy is weighing on the entire region. 

“Germany had built its economic model on very cheap energy supplies and on export opportunities, especially to China,” Lagarde told La Tribune Dimanche in an interview published Sunday. “The ongoing adjustment in the German economy is affecting the growth outlook.”

–With assistance from Kristian Siedenburg, Joel Rinneby, William Wilkes and Iain Rogers.

(Updates with Bloomberg Economics after fifth paragraph)

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