Germany’s economy hits a speed bump: Weak production data triggers recession fears

Germany, the largest economy in Europe, may be in trouble after its industrial production fell more than expected in March. This has triggered fears of a recession later this year. 

According to a Reuters report, industrial production tumbled 3.4 percent from the previous month, while automobile manufacturing dropped 6.5 percent. Machinery and equipment production fell by 3.4 percent, while the construction sector’s output decreased by 4.6 percent in March.

The economics ministry reported an unforeseen and significant drop in industrial production in March, following a solid start to the year. The statistics office also confirmed that production in the first quarter was 2.5 percent higher than in the final quarter of the previous year.

The slowdown in industrial production was partly caused by the recent global increase in interest rates, which hurt the economy as industrial orders reduced significantly. Specifically, German industrial orders dropped by 10.7 percent on a seasonally and calendar-adjusted basis compared to the previous month, as per Reuters.

This was the largest monthly decline since 2020, during the peak of the COVID-19 pandemic.

“The risks of a recession in Germany are rising,” Reuters quoted Commerzbank’s chief economist Ralph Solveen as saying.

Retail sales and exports also dropped sharply, increasing the likelihood of a downward revision to first-quarter Gross Domestic Product (GDP). If this happens, Germany’s economy could be considered to have fallen into a recession, which is defined as two consecutive quarters of contraction.

Carsten Brzeski, ING’s global head of macro, told Reuters that there is a high risk of a downward revision to the first-quarter GDP, making a technical recession more likely.

The decline in German industrial production is a cause of concern for the global economy. The recent disruption to the supply chain caused by the COVID-19 pandemic, coupled with the decline in German industrial production, led to a sharp rise in the prices of electronics and cars around the world.