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(Bloomberg) — German industrial production fell for a second month in June, further holding back Europe’s biggest economy after it barely exited a recession earlier this year.
Output declined 1.5% from May, led by cars and construction, according to the statistics office in Wiesbaden. The median prediction in a Bloomberg survey of economists was for a drop of 0.5%. The index for output showed the lowest level since December.
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German factories are enduring extended weakness amid poor demand from China, worker shortages, tighter monetary policy and the lingering fallout from last year’s energy crisis.
That’s weighing on the economy as a whole, which is anticipated by the International Monetary Fund to suffer the only contraction of the Group of Seven this year. Germany stagnated during the second quarter after a winter recession.
“A turnaround is not yet in sight,” Ralph Wiechers, chief economist of the VDMA, the country’s leading engineering industry lobby, said last week in a report that showed a large drop in manufacturing orders in June from a year earlier.
Germany’s production decline was mirrored by lower industrial output in France and Spain during the month. Of the four biggest euro zone economies, only Italy enjoyed an increase, and that was primarily due to vehicle production.
What Bloomberg Economics Says…
“The risk of the German economy slipping back into recession is getting higher.”
—Martin Ademmer. For full report, click here
For officials at the European Central Bank, the report will represent more evidence of deterioration in the euro-zone economy that they already observed at their latest interest-rate decision last month.
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Policymakers haven’t signaled whether they intend to deliver more tightening or to pause at the forthcoming meeting in September.
There’s little evidence that Germany’s industrial downturn is over. While factory orders surged in June by the most in three years, that was simply completing a rebound after an even bigger drop in March.
Prospects for German factories have stayed bleak amid continuing bad news from China. Economic activity there lost more steam in July as manufacturing contracted again, according to the country’s official purchasing managers’ index.
While recent company outlooks have been mixed, some reveal ongoing struggles. On Thursday for example, Infineon Technologies AG shares plunged after its fourth-quarter margin outlook missed estimates and the German chipmaker said costs had increased.
German government officials are bracing voters for the country’s economic challenges to last for years. Their answer for now is to ramp up spending.
This coming Wednesday, Chancellor Olaf Scholz and his cabinet will approve a €20 billion ($22 billion) top-up to a €200 billion fund for climate protection and investment in semiconductor production, according to people familiar with the plan.
—With assistance from Joel Rinneby and Kristian Siedenburg.
(Updates with Bloomberg Economics after sixth paragraph)
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