Fall in car production drives dip in German industrial output

Global slowdown, tariff disputes and Brexit weigh on Europe’s largest economy

The slowing German economy could increase tensions in chancellor Angela Merkel’s governing coalition over spending priorities.

The slowing German economy could increase tensions in chancellor Angela Merkel’s governing coalition over spending priorities.

 

Plunging car production drove an unexpected drop in German industrial output in January, as the engine room of Europe’s largest economy stuttered on trade tensions and unease about Brexit.

A global slowdown, tariff disputes sparked by US president Donald Trump’s policies and a potentially chaotic British departure from the European Union threaten to bring a decade-long expansion in export-reliant Germany to an end. Its economy only narrowly avoided recession last year.

The same factors are impacting the rest of the EU, and Monday’s data added weight to a dovish policy shift by the European Central Bank last week as safe-haven bonds rose.

“Industrial production is hard data and it is really cementing the impression that the European economy is slowing down,” said Mizuho rates strategist Antoine Bouvet.

“It is lending credibility to the view that the slowdown is not temporary.”

German business daily Handelsblatt said on Monday the federal government had cut its in-house GDP growth outlook to 0.8 per cent for 2019, the second reduction in less than two months.

Industrial output dropped 0.8 per cent, well below market expectations for a rise of 0.5 per cent, Germany’s statistics office said.

The figure for December was sharply revised up, however, to a 0.8 per cent increase from a previously reported 0.4 per cent drop, and the euro recovered ground after a brief dip.

Automobile production fell by 9.2 per cent on the month in January, separate data from the economy ministry showed.

Strikes

It blamed special factors such as strikes at suppliers and a switch to new brands for the weak performance, though German carmakers are also at the sharp end of a sectoral dip driven by a slowdown in China, a plunge in demand for diesel vehicles and costly investments in electric as well as self-driving cars.

“The headwinds from abroad are hitting the German economy particularly hard,” Sophia Krietenbrink from the DIHK Chambers of Industry and Commerce said.

Seasonally adjusted exports were flat month on month in January – compared with a forecast 0.5 per cent contraction – while imports rose 1.5 per cent, the data showed. That meant the trade surplus narrowed to €18.5 billion ($20.80 billion).

The unexpectedly weak data suggests the German economy is likely to post only meagre growth in the first quarter after it barely avoided a recession – defined as two consecutive quarters of contraction – in the second half of last year.

Citing a finance ministry document, Handelsblatt said Berlin had cut its growth forecast internally due to a weakening world economy, risks from escalating global trade conflicts, and political factors including Brexit and Italy’s stretched finances.

The German government had already cut 2019 growth expectations in January to 1 per cent from 1.8 per cent.

The slowing economy means tax revenues are likely to be lower than expected this year, which could increase tensions in chancellor Angela Merkel’s governing coalition over spending priorities.

Ralph Solveen from Commerzbank forecast modest first quarter GDP growth “because car production is likely to rebound”.

ING economist Carsten Brzeski said the sharp revisions of monthly data, stabilising domestic orders and solid fundamentals suggested the industrial slowdown was reaching its low point.

“But if the search for a bottom takes too long, the German government should start considering additional fiscal stimulus,” he said. – Reuters