German industrial production falls in October

German industrial production unexpectedly fell in October, according to figures released by Destatis on Friday, reigniting fears about a recession.

Industrial production declined 1.7% on the month, missing expectations for a 0.1% increase and following a 0.6% fall in September.

On the year, industrial production was down 5.3% following a 4.5% decline in September.

Production in industry excluding energy and construction was 1.7% lower. Within industry, the production of intermediate goods increased 1% and the production of consumer goods was 0.3% higher. The production of capital goods showed a 4.4% fall.

Outside industry, energy production rose 2.3% in October, while production in construction fell 2.8%.

Andrew Kenningham, chief Europe economist at Capital Economics, said: "The sharp decline in production in October suggests that, far from bottoming out, Germany’s industrial recession may be getting worse.

"What’s more, there is nothing in the recent surveys to suggest that things are turning around. The manufacturing component of the Ifo Business Climate Index edged down in November and was consistent with industrial output declining by 5% year-on-year. And although Germany’s Manufacturing PMI rose, it was still at an exceptionally low level.

"Germany narrowly avoided a recession in Q3, when GDP edged up by 0.1%, but the latest data support our view that a recession is still more likely than not in the coming quarters."

ING economist Carsten Brzeski said: "Today’s data suggests that the German economy is continuing to flirt with stagnation and contraction in the final quarter of the year.

"Capacity utilisation has dropped to its lowest level since early 2013. At the same time, the well-known supply-side constraints have also started to ease but not with the same magnitude as capacity utilisation. The lack of skilled employees and too little equipment as limiting factors have dropped to their 2017-levels, suggesting that the current slump in manufacturing is still a combination of supply-side and demand-side factors.

"Looking ahead, both soft and hard indicators bode ill for industrial activity in the months ahead. Production expectations show very tentative signs of stabilisation at low levels but order books are still shrinking and inventories remain high. Trade conflicts, global uncertainty and disruption in the automotive industry have put the entire German industry in a headlock, from which it is hard to escape."