Weak demand slows production – Commerzbank

Dr Ralph Solveen, Senior Economist at Commerzbank, offers a brief review of the German macro data released this Thursday, which showed that Industrial Production fell more than anticipated in July and pointed to further weakness in the country’s manufacturing sector.

Key Quotes:

“A closer look at the sectors shows that the decline affected all manufacturing groups. The automotive sector stands out, with output falling by almost 10%. By comparison, the decline in the energy-intensive sectors was very moderate at 0.6%. However, there are no signs that lower energy prices compared to last autumn could spur a recovery here either. On the negative side, output is now also falling in the other sectors. Although output there fell by only 0.4% on average in July. However, this was the third decline in a row for this sub-group, which means that the trend here is also down.”

“Given the weakness in new orders, a further decline is likely in the coming months. The hope in many forecasts that high order backlogs would stabilise production is unlikely to materialise. The results of the Ifo survey show that a clear majority of companies no longer regard their order books as large, but as too small. Given the collapse in new orders, construction output is also likely to fall sharply in the coming months. There is therefore much to suggest that the German economy will contract again in the second half of the year.”