German Industrial Output Declines On Weak Auto Production

Driven by the weaker automotive and construction output, Germany’s industrial production declined more than expected in June, adding concerns of a downward revision to the second quarter GDP data.

Industrial production posted a monthly fall of 1.5 percent in June, following a revised 0.1 percent drop in May, Destatis reported Monday. Output was forecast to decrease moderately by 0.5 percent.

Automotive industry and construction were the major drag, while the pharmaceutical industry made a positive impact.

Production in the vehicle industry declined 3.5 percent and construction output dropped 2.8 percent. On the other hand, the pharmaceutical industry registered a 7.9 percent rise.

Excluding energy and construction, industrial production decreased 1.3 percent.

Further, data showed that capital goods output slid 3.9 percent, while output of consumer and intermediate goods grew 1.8 percent and 0.4 percent, respectively. Energy production gained 0.6 percent.

On a yearly basis, industrial production logged a decrease of 1.7 percent in June after staying flat in May.

ING economist Carsten Brzeski said the recent surge in industrial orders brightened the industrial outlook somewhat. However, the rebound in new orders in May and June has only offset the sharp drop earlier in the spring and it does not reflect the start of a new positive trend, the economist noted.

Data released last week showed that factory new orders advanced 7.0 percent on a monthly basis in June and 6.2 percent in May.

Capital Economics’ economist Franziska Palmas said the outlook for German industry is bleak. The economist noted that the fall in industrial output will be one of the factors causing a renewed contraction in German GDP in the second half of this year.

The initial estimate showed that German economy stabilized in the second quarter as private consumption helped to halt the recession. GDP remained flat after two consecutive contractions.

In the latest World Economic Outlook, the International Monetary Fund projected the German economy to contract 0.3 percent this year before rebounding 1.3 percent in 2024.

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