German Industrial Output Surges 2.9% in August, Yet Recession Signals Persist

German Industrial Production Jumps by 2.9% Offering Brief Relief

On Tuesday, October 8, the focus shifted back to the German economy following August’s slump in factory orders and September’s PMI data.

Industrial production increased by 2.9% in August after sliding by 2.9% in July. Economists had predicted a more modest increase of 0.8% in August.

According to Destatis,

• Production across the automotive industry surged by 19.3% in August, recovering from an 8.2% fall in July.
• Industrial production, excluding energy and construction, increased by 3.4% in August.
• Production of capital goods jumped by 6.9%, while intermediate goods production rose by just 0.1%.

Looking beyond the monthly figures:

• Over the three months from June 2024 to August 2024, production was 1.3% lower compared to the previous three months.
• Year-over-year, industrial production declined by 3.1% in August 2024 compared to August 2023.

German Manufacturing Sector: Recession Signals

Despite the recovery in production, the upswing could be temporary, likely supported by the earlier pickup in factory orders in June and July.

August’s factory orders and private sector PMIs painted a gloomier picture. The 5.8% drop in August’s factory orders signals a potential production slump. September’s manufacturing sector PMIs also signaled a likely pullback in production.

Germany’s HCOB Manufacturing PMI dropped from 42.4 in August to 40.6 in September. Notably, new orders fell at the sharpest rate since October 2023, bringing output to its lowest level in 11 months.

Manufacturing sector woes have also impacted Germany’s service sector, fueling concerns about a recession.

Expert Views on the German Economy

Hamburg Commercial Bank Chief Economist Dr. Cyrus de la Rubia commented on the latest private sector PMI data, stating,

“The struggles in the industrial sector are starting to spill over into services. Many service providers work directly with manufacturing companies, and as the latter tighten their belts, outsourced services are often the first thing on the chopping block. As a result, service providers have been cutting staff over the past three months, and the pace of layoffs sped up in September.”

On Monday, the German government predicted the German economy will contract by 0.2% in 2024.

Industrial Production and the ECB Rate Path

The August figures may not alter expectations for a 25-basis point October ECB rate cut. September’s private sector PMIs signaled softer cost pressures, with input prices rising at the slowest pace in 14 months. Gloomy economic activity and easing inflationary pressures may boost bets on multiple Q4 2024 ECB rate cuts.

EUR/USD Reaction to German Industrial Production

Before Germany’s industrial production report, the EUR/USD fell to a low of $1.09693 before climbing to a high of $1.09867.

However, in response to the production report, the EUR/USD rose to a high of $1.09867 before falling to a low of $1.09819.

On Tuesday, October 8, the EUR/USD was up 0.10% to $1.09854.