Business | General
German industrial production slumps sharply
Industrial production in Germany declined the most in almost 14 years in September, increasing the likelihood of a recession in Europe's largest economy.
- Bloomberg
- Published: 23:20 November 7, 2008
Frankfurt: Industrial production in Germany declined the most in almost 14 years in September, increasing the likelihood of a recession in Europe's largest economy.
Output dropped a seasonally adjusted 3.6 per cent from August, the Economy Ministry in Berlin said yesterday. Economists expected a decline of 1.7 per cent, the median of 36 forecasts in a Bloomberg News survey showed.
From a year earlier, production adjusted for working days fell 2.1 per cent.
German companies are scaling back production as the global economy buckles under the credit crisis and higher borrowing costs, hurting export markets and causing consumers to cut back on spending as they worry about their jobs.
Factory orders recorded the biggest monthly drop ever in September and business confidence last month slumped to a five year low.
"It's looking grim and will continue to look grim for quite some time," said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt who forecasts Germany's economy will contract 1.5 per cent next year.
"Germany's fortunes are tied to export markets and they are all collapsing. The German consumer won't be able to outspend the decline in exports."
The ministry revised last month's figure to a 3.2 per cent increase from an initially reported 3.4 per cent, according to Friday's statement. Last month's gain was overstated on holidays.
This month's drop was led by a 7.2 per cent slump in the production of durable goods such as washing machines and televisions, the ministry said in the statement.
"Due to continued weak demand in manufacturing and the construction industry the outlook for production remains markedly dimmed," the ministry said in the statement.
Cheaper money
Banks have recorded almost $700 billion (Dh2.57 trillion) in writedowns and losses tied to the US mortgage market since the start of 2007.
That's forced central banks to slash interest rates and governments to bail out lenders.
The European Central Bank and the Swiss National Bank on Friday lowered their key rate by 50 basis points, while the Bank of England cut by 150 basis points.
The yearlong credit crunch is already feeding into the economy. German luxury carmakers Bayerische Motoren Werke AG and Daimler AG have both scaled back production after they had to scrap their 2008 profit forecasts, citing declining markets.
The association of German chemical makers, VCI, which includes BASF SE and Bayer AG, cut its 2008 production forecast to 1 per cent growth from a previous estimate of 2.5 per cent. Already production in the third quarter fell by 1 per cent from the previous three months, the group said November. 4.
The European Commission said earlier this week that the European Union's economy, which accounts for 62 per cent of German exports, will probably enter a recession in the fourth quarter, and said Germany won't grow at all next year.
Households are cutting spending and have boosted savings on increased concern about job security. Retail sales contracted for a fifth month in October, the Bloomberg Purchasing Managers Index showed October 30.
At the same time, households increased their savings to 11.3 per cent of disposable income in the first quarter, the Federal Statistics office said October 20.
Germany's DAX benchmark index has shed 9 per cent over the past month, bringing declines to almost 40 per cent this year.
Chancellor Angela Merkel's government hopes to soften the impact on the economy with a package of measures aimed at unlocking 50 billion euros ($64 billion) of investments.
The programme, which also includes increased tax relief on household repairs, loans to small and medium-sized businesses and money for roads and railways, is "bold and targeted" and will help revive economic growth in 2010, Merkel said on November 5.
Companies may also get some relief from lower oil prices and a weaker euro. The price of crude oil has more than halved from its July record of $147 a barrel, while the euro has tumbled almost 20 per cent in the past four months.
Still, it may not be enough to shield German industry from the impact of the financial crisis. "The worst is still to come for manufacturers," said Carsten Brzeski an economist at ING Group in Brussels. "The industrialised world is heading for a recession and the German economy is in the middle of the storm."
Share this article
More from Business General
More from Business
Popular in Business
-
XPRESS
Way to go this DSF
A fun-filled route to guide you to all the happening dos in town
Business Editor's choice
-
UAE companies in full force at WTM
Seventy-eight participants are from Dubai and 50 from Abu Dhabi
-
DIFC committed to high standards
Ensures an efficient process to serve the business community
-
Sweet life in the Middle East
A sweet look at the confectionary industry in the UAE and Middle East
