Heisenberg Report

Germany, Which Runs A Surplus And Can Borrow For Free, Posts Worst Industrial Production Plunge Since Crisis

For Germany, things went from bad to “recession is calling, pick up line one” on Friday when industrial production data underscored the dour message from Thursday’s abysmal read on factory orders.

Output cratered 3.5% MoM in December, woefully worse than the minuscule 0.2% contraction the market was expecting. The range was -1% to +0.7%. That gives you a sense of how bad this really was. Capital goods dropped 3.5%, consumer goods fell 2% and basic goods dove 2.6%.

The YoY print was, in a word, terrible. Output crashed 6.8% on year in the final month of 2019, nearly double the expected decline.

This quite clearly suggests the German economy contracted in the fourth quarter. The initial read on GDP is due on the 14th.

On Thursday, data showed the world’s fourth largest economy suffered through a 19th consecutive month of order book contraction. Friday’s IP data draws a bright, red line under the words “manufacturing” and “recession”.

Meanwhile, there’s no red ink on the pages of the German government’s books, which makes this situation seem all the more absurd. The country continues to run a surplus even as the economy teeters precariously on the brink of recession. That cannot properly be described as “responsible” fiscal management. That is masochism at best, and lunacy at worst.

Let me reiterate: Sticking to a pathological obsession with budget rectitude at a time when industry is collapsing in a manufacturing-centric economy, is a crime against economics, and it’s made immeasurably more heinous by this:

Apparently, it’s going to take an outright, full-economy recession to prompt Germany to take advantage of the free money on offer in the bond market.

In case folks needed further evidence that the European economy is confronting a possible hit from the Wuhan virus from an already weak position, industrial output data from France, Spain and the Netherlands came in far worse than expected too.

All of this at a time when Donald Trump continues to threaten the bloc with tariffs and other punitive measures for what the White House swears are crimes against the US economy.

On Thursday, Christine Lagarde told lawmakers at the European Parliament that “this low interest rate and low inflation environment has significantly reduced the scope for the ECB and other central banks worldwide to ease monetary policy in the face of an economic downturn”.

Read more:

‘Horror Show’: Germany Posts Worst Factory Orders Drop In A Decade

Germany Just Logged The Worst Annual Growth In 6 Years (While Posting An Eighth Straight Budget Surplus)