German industrial production slumps in April

German industrial production fell much more sharply than expected in April, according to figures released by Destatis on Friday.

Industrial production slumped 1.9% on the month in April compared to a 0.5% increase the month before and versus expectations for a 0.4% decline.

On the year, industrial output was 1.8% lower versus a 0.9% drop in March and expectations of a 1.7% fall.

Production fell across all sectors apart from construction, where it nudged up 0.2%. Production in industry excluding energy and construction was down 2.5%. Within industry, the production of intermediate goods declined 2.1%, while output of consumer goods was 0.8% lower.

The production of capital goods was down 3.3%, while energy output declined 1.1% in April.

Andrew Kenningham, chief Europe economist at Capital Economics, said the fall in industrial production in April adds to the evidence that Germany has not shaken off the problems which hit it nearly a year ago, and suggests that the economy slowed sharply in the second quarter of the year.

"The drop in April follows a modest recovery in the first quarter, as industrial production rose by 0.5% quarter-on-quarter. But these 'green shoots' always looked unconvincing because they were largely due to a 3.9% increase in construction, which was helped by the unusually mild weather. What’s more the business surveys for May suggest that things were no better last month.

"German industry is still struggling with both domestic and external headwinds, including the weakness of global trade, slowdown in household consumption growth and regulatory confusion in the auto sector. We don’t expect a sustained improvement anytime soon."

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said this was a disappointing start to the second quarter, but a setback has been looming given how strong production growth was in the first quarter relative to the survey data and new orders.

He said the increase in construction sector production was "surprising given the recent decline in leading indicators, and the strong performance in Q1 calling for mean-reversion".

"We think this sector will slow significantly in coming months. It is too soon to say anything conclusive about the second quarter as a whole, but we fear that production will fall outright on the quarter, dragging GDP growth down after an otherwise solid start of the year."

There was more bad news for the German economy on Friday as the Bundesbank slashed its GDP estimate for this year to just 0.6% from a 1.6% forecast back in December.

"After a boom phase, the German economy is currently experiencing a marked cooldown," it said. "While the forces driving the domestic economy remain intact, the underlying cyclical trend is subdued. This is mainly attributable to the downturn in industry, where lacklustre exports are taking their toll."