Berlin (Reuters) – Amid fears of recession, German companies gave a small sign of hope at the beginning of the year with an increase in production.
Industry, construction and energy suppliers together produced 1.0 percent more in January than in the previous month, as the Federal Statistical Office announced on Friday. Economists surveyed by the Reuters news agency had only expected an increase of 0.6 percent. “Production in the manufacturing sector is starting 2024 with its first noticeable increase since February 2023,” explained the Federal Ministry of Economics regarding the figures.
However, according to Germany’s chief economist Robin Winkler from Deutsche Bank, this small positive surprise was “salted” by the fact that the December figure was revised significantly downwards to minus 2.0 percent from the originally reported minus 1.6 percent: “Overall, the Available data still indicate that the German economy fell into a technical recession in the winter half of the year, led by the manufacturing sector,” he concluded.
According to Commerzbank chief economist Jörg Krämer, a quick turnaround for the better is not in sight because incoming orders are still generally falling: “There is only hope for German industry for the second half of the year, when the pain caused by the recent interest rate increases and the raw material price increases will subside and the global industrial economy will recover,” says the expert.
It is possible that the situation on the inflation front will continue to ease by the middle of the year, which would pave the way for the European Central Bank (ECB) to turn interest rates. ECB boss Christine Lagarde already turned her attention to June with a view to the interest rate cut longed for by the financial markets.
In Germany, the largest economy in the euro area, consumer prices only rose by 2.5 percent in February – the lowest value since June 2021. At the same time, producer prices continue to fall and signal easing inflation pressure. Manufacturers of raw materials and industrial products demanded an average of 4.4 percent less in January than a year earlier, as Destatis announced.
INDUSTRY INCREASES OUTPUT FOR THE FIRST TIME SINCE MAY
The industry increased its output in January with an increase of 1.1 percent for the first time since May 2023. Energy production fell by 3.7 percent at the beginning of the year. Construction had seen three months of declines before January’s 2.7 percent rise. As the Ministry of Economic Affairs further announced, production in the construction industry was likely to be influenced by comparatively mild weather in January. “Current leading indicators such as incoming orders and sentiment indicators such as the Ifo business climate index or the Purchasing Managers’ Index (EMI) indicate that the industrial economy is bottoming out,” it continued.
However, new business in the manufacturing sector fell by 11.3 percent at the beginning of the year compared to the previous month. The last time there was a sharper decline was in April 2020, when the Covid pandemic kept the economy on the rocks. However, December 2023 brought the sector a big increase of 12.00 percent thanks to many large orders. According to economist Jörg Angelé from the Swiss Bantleon AG, there is still no bottom in sight for incoming orders. What is particularly worrying is the 2.1 percent decline in orders in January, excluding large orders, to a new cyclical low.
(Report by Reinhard Becker, edited by Sabine Ehrhardt – If you have any questions, please contact our editorial team at [email protected])