TDespite the severe headwind caused by the shortage of materials, the energy crisis and high inflation, German companies kept their production more or less stable in October. Industry, construction and energy suppliers together produced 0.1 percent less than in the previous month, as the Federal Statistical Office announced on Wednesday. Economists polled by Reuters had expected a sharper 0.6 percent decline after production rose by an upwardly revised 1.1 percent in September. It thus remained at the level of the same month last year.
In view of the better than expected development, economists were optimistic that the feared winter recession could be milder than previously forecast. “Because the supply chain problem is becoming less explosive and at the same time gas rationing is unlikely, we expect the recession to be less severe and shorter than it was a few weeks ago,” said Thomas Gitzel, chief economist at VP Bank.
Nevertheless, the Federal Ministry of Economics warned: “The outlook for industrial activity in the coming months remains clouded in view of a noticeably cool mood in companies and restrained demand”.
Construction industry is growing significantly
Commerzbank chief economist Jörg Krämer agrees. “Despite the good news, you should keep your feet on the ground,” said the economist. Central banks around the world have had to massively raise their key interest rates due to high inflation, which is driving up borrowing costs for companies. “Sooner or later this will weigh on the demand for interest-sensitive investments,” emphasized Krämer. Nevertheless, an economic slump has become unlikely due to the lack of gas rationing.
Industry alone produced 0.4 percent less in October than in the previous month. Bucking the trend, producers of capital goods such as cars and machines increased their output by 1.4 percent. For consumer goods, it fell by 1.9 percent as manufacturers suffered from inflation-plagued consumers’ reluctance to buy. Intermediate goods fell by 1.8 percent.
The construction industry, on the other hand, reported growth of 4.2 percent. “That could have been due to the comparatively mild weather in October,” the ministry said. The energy suppliers throttled their generation by 7.6 percent. “The remarkable decline in the energy sector can probably be attributed to the energy-saving efforts of industry and private households,” emphasized the ministry.
The recently surprisingly strong growth in orders in industry gives reason to hope that the winter recession in Germany will only be mild. Orders rose again in October after two declines in a row, by 0.8 percent on the previous month. This was ensured by increasing foreign demand and large orders. The companies are sitting on an unusually thick backlog of orders, since many orders could not be processed in the past few months due to a lack of preliminary products and raw materials. The supply chains are now working better again. Experts therefore do not rule out an increase in industrial production in the coming months.