The economic picture hardly needed to get any darker for Germany, but it did anyway on Wednesday.
Industrial production fell 5.2% YoY in June, the economy ministry said, noting the obvious, which is that the factory sector “remains in a downturn”.
“The decline in the industrial sector in the second quarter was mainly attributable to the areas of metal production, mechanical engineering and motor vehicles”, the ministry remarked. “Within industry, all three main groups, intermediate, capital goods and consumer goods, saw their output decline”.
This is not great news. That annual decline is the largest since 2009 and is just the latest data point to suggest that the eurozone’s largest economy is headed for an outright downturn. Note the chart header – “pretty awful”:
SocGen’s Kit Juckes called the print “shocking”. “[It] would seem to doom Q2 GDP”, he wrote on Wednesday, adding that “weaker global trade, a struggling global auto industry, Brexit and China’s economic problems get pretty close to a perfect storm for Germany”.
This is just the latest in a string of abysmal data. Late last month, Ifo’s gauge of business expectations plunged to 92.2, the lowest reading since 2009.
Just days earlier, IHS Markit warned that the malaise in the manufacturing sector was starting to spill over into services. “Still solid growth in the service sector means that the German economy is just about keeping its head above water for now, but even here there are signs of increased worries among companies as optimism hit a three-and-a-half year low”, Phil Smith, Principal Economist at IHS said.
It’s just a matter of time before this starts to show up in the labor market. After that, all bets are off.
“German economic activity has weakened sharply since late 2017, with our CAI falling from 4.2% in November 2017 to -0.4% in July 2019… largely reflecting the drag from the industrial sector whereas the consumer-facing parts of the economy have remained remarkably resilient”, Goldman wrote Wednesday, adding that “this pronounced disconnect between the industrial and consumer-oriented sectors of the economy is unusual—and particularly visible in the German manufacturing and services PMIs”.
If you’re waiting on fiscal policy to save the day, don’t hold your breath. The government hasn’t generally indicated a willingness to loosen up the purse strings.
“The fact that there’s masses of fiscal room to tackle the slowdown doesn’t seem to matter in Berlin”, SocGen’s Juckes lamented on Wednesday.
All one can hope for is a resolution to the trade conflict. And that’s another “don’t hold your breath” kind of deal.