In case you haven’t noticed, Germany is mired in what, at least for right now, still seems like an intractable factory slump, courtesy of the trade wars and Brexit uncertainty.
Although the world’s fourth-largest economy narrowly dodged a broader recession in the third quarter, there’s no denying the manufacturing malaise and on Tuesday, the BDI Industry association underscored the point.
“After six years of growth, German industry has been in recession since the third quarter of 2018 at the latest”, Managing Director Joachim Lang said. The BDI now sees manufacturing production in Germany falling 4% in 2019, a remarkable downgrade from the previous forecast for 0%.
“After a decline of 1.7% in the first quarter, production losses increased significantly in the second and third quarters”, the association laments. “Based on the data for the first nine months, production fell by 4.3% compared to the same period of the previous year”.
The accompanying report is all kinds of foreboding. For industrialized countries, BDI sees production stagnating. The chart below shows IP for developed economies (the black line is just the PMI).
“In the first two quarters, production [for DMs] was still slightly higher than in the same period of the previous year [but] the pace of expansion slowed significantly over the course of the year and fell into negative territory in June”, the report reads. “As a result, production rose by only 0.3% in the first eight months compared to the same period last year”.
Ultimately, none of this is “new”, per se, but it’s a stark reminder that buoyancy in services and expectations for an imminent inflection in global PMIs (due to the lagged effect of monetary stimulus) aside, global activity in manufacturing is stuck in a truly abysmal rut. And Germany is taking it on the chin.
Unfortunately, the fiscal hawks in Berlin have not been swayed into embracing deficit spending. Apparently, budget bragging rights take precedence outside of an outright collapse.