By Sergei Manukov
Industrial production in Europe's largest economy fell by 1.5% in June compared to May. The powerful German auto industry, unlike in the past, this time pushed the German economy not up, but down - in the first summer month, it recorded a decline of 3.5%.
The recession in German industry, which far exceeded economists' forecasts, indicates the threat of a return in the second half of 2023 of the recession from which Germany emerged in the second quarter, according to CNN. The auto industry, according to the statistical office of Germany Destatis, bypassed the negative contribution to the decline in the construction sector, the decline in which in June amounted to 2.8%.
Germany came out of recession very unconvincingly, thanks to the definition of a technical recession, which only speaks of a decline, but nothing about maintaining the performance at the same level, as happened with the German economy in April-June. Most indicators and data suggest that even this purely symbolic improvement in the economy is likely to be short-lived.
"We believe that a decline in manufacturing will be one of the factors that will bring back the recession in the second half of the year," Francisca Palmas, senior economist at Capital Economics, wrote in a research note.
Joerg Kramer, chief economist at Commerzbank, agrees with her.
The automotive industry accounts for almost 5% of the entire German economy. The automotive industry is struggling to recover from the effects of the pandemic and disrupted supply chains. In the first half of the year, according to the German Automobile Industry Association (VDA), approx. 2.2 million vehicles. This is slightly more than in the first half of 2022, but 10% less than in the first half of pre-pandemic 2019.
“In the light of the general economic situation and the dynamics of new orders, we can expect that the growth rate will slow down soon,” predicts VDA President Hildegard Müller. “The order book is gradually decreasing.”
In other sectors of the industry, such as energy, the outlook is not as bleak as in the automotive industry. In general, the number of new orders in the manufacturing sector in June increased by 7% in monthly terms. True, it should be borne in mind here that the picture is distorted by very large orders.
"German industry is in a storm," Berenberg economist Salomon Fiedler says.
The main reasons for this storm, Fiedler believes the shock from energy prices and the weakness of the US economy, as well as low demand in China. He also, by the way, believes that in the second half of the year a “mild recession” will return to Germany.
Volkswagen (VW), Europe's largest automaker, has suffered a significant decline in car sales in the Middle Kingdom, its largest sales market, where it is now clearly losing to local competitors.
VW reported a 14.5% decline in vehicle deliveries to China in the first quarter of this year. In April and May, the situation improved somewhat, but in the first six months of the year, deliveries still fell by 1.2% compared to the first half of 2022.
The German manufacturing sector continues to be heavily hampered by energy prices. At the end of last year and this year, however, gas prices collapsed and are now 44% below prices of February 24, 2022.
This article originally appeared in Russian at expert.ru