Weak German Industrial Production Indicates Another Recession

After two significant falls in September and October, German industrial production managed only a weak recovery in November.

Output edged up by 0.2 percent in November, data from the Economy Ministry showed. The headline figure came in well below a Reuters consensus forecast for a 1 percent rise.

The output data for October was upwardly revised to a fall of 2 percent from a previously reported drop of 2.6 percent.

The ministry said industrial output in the fourth quarter was "likely" below the level of the third quarter. A recession is defined as two consecutive quarters of contraction.

"After a weak start to the fourth quarter of 2012, industrial production has stabilized for the time being," the ministry said in a statement. "However, in the fourth quarter, it will probably remain below third-quarter levels.”

A breakdown of the report showed manufacturing output rose 0.4 percent on the month in November, production of consumer goods declined 2.2 percent and energy output dropped 3.3 percent. Construction gained 1 percent from October.

Wednesday's industrial data follows other indicators of weakness in the German economy. Earlier in the week, data showed that exports dropped in November at their fastest pace in more than a year and manufacturing orders were down 1.8 percent on the month in November, providing further proof that the euro zone's previously peripheral problems had now spread to the core.

Jonathan Loynes, chief European economist at Capital Economics, said the November figures were a "major disappointment" after the drops seen in September and October, which reinforced expectations of a big fall in growth in the final quarter of 2012.

He noted that even a 2 percent monthly rise in December would leave overall industrial production in the fourth quarter down by more than 2 percent, compared to the 0.8 percent rise seen in the third quarter.

That drop alone, he said, could knock 0.6 percent off gross domestic product growth in the fourth quarter, supporting recent suggestions from the economy minister that German GDP might fall by not far short of 1 percent in the October-December period.

"Note too that industrial surveys offer little hope of any imminent improvement, with the manufacturing PMI consistent with further steep falls in production," he added.

Last month, Germany's Bundesbank said the outlook for the German economy had “dimmed” and that the country could be heading into recession in the early part of this year. 

It lowered its growth forecast for 2012 to 0.7 percent from a June forecast of 1 percent and said growth in 2013 will likely to be just 0.4 percent, compared to its earlier prediction of 1.6 percent.

The German economy grew by a record 4.2 percent in 2010 and by 3 percent in 2011.

“Overall, the figures provide a strong warning that the German economy is heading back into recession for the first time since 2009,” Loynes said. “Not only will that have directly negative knock-on effects on the rest of the euro zone, but it could threaten to harden Germany’s resistance to additional financial support for the peripheral economies and more decisive steps toward a fiscal union.”