In the darkest days of the 2009 recession, Germany’s industrial output was collapsing at an annual rate of more than 20%. An unfathomable implosion but one that thankfully ended almost as quickly as it started.
Some 10 years on, a crisis is brewing once again in the country’s industrial heartlands. The pain could prove more enduring this time.
So far the problems aren’t nearly as acute as in 2009; industrial production fell by a comparatively modest 4.2% in July. The worry, though, is that demand is being sapped by a mix of both cyclical and longer-lasting structural factors such as the demise of diesel and the shift to electrical vehicles. Trump’s trade wars and Brexit aren’t helping.
Germany’s industrial sector contributes more than one-fifth of GDP and is usually a huge asset. Right now this export engine is pulling the economy down. Signs of distress are everywhere. German manufacturing activity is at a decade low, according to IHS Markit’s purchasing manager’s index. The Ifo Institute estimates that more than 5% of manufacturing companies have cut working hours and about 12% expect to do so during the next three months. German machinery orders declined 9% in the first six months of the year, according to the VDMA association, which represents the country’s engineers. In chemicals and pharmaceuticals, domestic production fell 6.5% in the first half of the year, while domestic car output has fallen 12% this year. Auto exports have dropped 14%.
