Another set of miserable industrial data from Germany has raised concerns among analysts that Europe’s largest economy could be subjected to contracted in the fourth quarter of 2018.
German industrial production declined 1.9 percent month-on-month in November, coming in way beneath a consensus for growth of 0.3 percent.
“The very bad run is continuing and it is now possible that German gross domestic product (GDP) languished in the fourth quarter of 2018,” J.P.Morgan economist Greg Fuzesi said in a note Tuesday. “Of course, the German industrial assembly data are very noisy, but even with a big rebound in December, it is no longer possible to rule out even a small GDP contraction in the fourth neighbourhood of 2018.”
Weakness was widespread across industry, the preliminary data from Germany’s federal statistics office Destatis showed Tuesday, with avoids in output seen in the auto, energy and construction industry.
The latest industrial production numbers marked the third consecutive tackle in the country’s production numbers and concerns over economic growth. In October, industrial production fell 0.8 percent on the prior to month.
Economists will be watching closely when Germany’s statistics office publishes preliminary GDP data for the fourth clemency and 2018 next week (January 15).
In the third quarter, German growth fell 0.2 percent from the above quarter. Technically, a recession is when there is two consecutive quarters of economic contraction. Foreign trade data set on Wednesday this week will also give an indication on how Germany is faring against a backdrop of global exchange tensions between the U.S. and China, Brexit and economic uncertainty in the euro zone.
The German government cut its economic growth prognosticate for 2018 in December with Economy Minister Peter Altmaier predicting growth of 1.5 to 1.6 percent in 2018, down from a preceding forecast of 1.8 percent.
“Both the latest hard and soft data coming from the German industrial sector participate in been so surprisingly weak that they also convey a fundamental message. In our view, there is something concoction, probably triggered by less dynamic global trade,” Andreas Rees, chief German economist at UniCredit, thought in a note Tuesday.
He agreed that the fourth quarter GDP data is “likely to be far weaker than expected” and that a stagnation in whole economic activity in the fourth quarter of 2018 “cannot be excluded.”
Possible triggers for softness in the data could be the evolving trade tensions, the uncertainty about Brexit, the slowdown in China and the latest stock market turbulence which may mandated as an additional dampener on business sentiment. Germany’s DAX had its worst year in a decade in 2018 amid persistent market volatility across the world. The index had fallen 18 percent from the start of 2018 and briefly fell into bear market area (when stocks see a 20 percent decline or more from a recent high) in December.
Two technical factors could sooner a be wearing affected the latest industrial production data, however, including the fact that there were a lower few of available working days in November due to the timing of public holidays.
Secondly, “a strong rebound in car production has still not backlashed in according to the latest November data,” Rees said, caused by the working-day effect but also by the ongoing problems of alteration to a new car emission testing regime.
UniCredit’s Rees said that given the rising likelihood of a weak fourth dwelling-place, “the performance in 2019 could also be less dynamic than assumed, even if one pencils in the expected delayed bounce.”
Economists agree that there will be a rebound in the German car sector, a key driver of German economic growth. The sector was hit by the diesel emissions outrage that emerged in late 2015.
Nonetheless, Chief Economist at ING Carsten Brzeski said in a note Tuesday “there is numberless to it than just cars.”
“Weaker German industrial production is not only the result of problems in the automotive sector. In really, the last significant quarterly surge in industrial production dates back to the fourth quarter of 2017. Since then, industrial staging has been treading water,” he said.
Brzeski believed a recession should be nothing to be too worried about. “It should be detailed, without any significant marks on the labor market. In fact, there are still plenty of reasons to remain optimistic, impassive for German industry: despite the recent deflation of new orders, order books are still richly filled and companies noiselessness report assured production close to record highs,” he said.
“In addition to this, the recent pick-up in orders in the automotive hustle and favorable financing conditions in the entire economy also bode well for at least solid industrial and investment bustle in 2019.”