Amid the twin pressures of Covid lockdowns in China and Russia’s invasion of Ukraine, Germany industrial output has fallen far beyond expectation. According to statistics body Destatis, industrial production fell by 3.9 percent in March, almost four times the predicted one percent decline. Germany’s famous car industry has been particularly badly hit seeing a 14 percent drop in production as one of the biggest contributors to the slump in output. Car production has suffered globally from a shortage of semiconductors which has been intensified by the reliance on Russia for key metals, such as nickel and palladium.
Meanwhile, Covid lockdowns in key Chinese hubs such as Shanghai and Shenzhen have caused hold ups in the shipping of parts as well as local factory closures.
German names such as Mercedes and Volkswagen have been forced to cut production amid the shortages.
Carsten Brzeski, Global Head of Macro at ING Think, noted that exports, industry and energy, once the “three pillars of Germany’s successful economic model”, had now become its “Achilles’ heel”.
Writing in a note he said: “Given the highly internationalised production processes in German industry, expect more semi-finished products waiting in Germany for semiconductors or other input materials from Asia.”
With Europe’s largest economy facing such a significant slump in key industries many are now worried as to the wider economic impacts.
Andrew Kenningham, Chief Europe Economist at Capital Economics, said: “We think this is the start of a deep manufacturing downturn which is likely to drag the entire economy into recession.”
Fears of a recession in Germany were set running earlier in the year after warnings from its central bank, the Bundesbank, after its economy shrank in the final quarter of 2021.
Germany has narrowly avoided this for the first quarter of 2022 with growth just registering positive at 0.2 percent however the path ahead looks increasingly uncertain.
Germany’s finance ministry has already slashed growth forecasts for this year to 2.2 percent, down from the 3.6 percent hoped for in January.
Vice-Chancellor Robert Habeck said Russia’s invasion of Ukraine was “adding a new burden” following two years of Covid.