After two weak months, Germany's auto industry is reporting back with a strong increase in production. German industry as a whole is also growing again. Economists are hopeful for a recovery - but the crisis continues in some sectors.
Surprisingly, German industry continued to grow in September despite restrictions caused by the drought and the negative consequences of the wars in Iran and Ukraine. The expected slight setback did not materialize. Industry, construction and energy suppliers together produced 0.7 percent more than in the previous month, as the Federal Statistical Office (Destatis) announced based on preliminary data. The main factor was the growth in the automotive industry - this rose by 17.1 percent compared to the previous month.
However, the value for the previous month was revised significantly downwards. Growth was 1 percent in August, not 2 percent as originally reported. The Federal Statistical Office said that the comparatively high revision was due to additional information from companies in the construction industry on advance VAT returns. In a three-month comparison, which is less prone to fluctuations, production in the third quarter from July to September was 0.4 percent lower than in the second quarter.
The Federal Ministry of Economics explained that the recent significant improvement in sentiment in industry, the high order backlog and the expiration of special effects that dampened production indicate that the industrial economy will pick up at the end of the year. "In view of the still difficult geopolitical environment and the significant rise in world market energy prices, the recovery remains subject to risks."
Growth in the auto industry
“The increase in industrial production shows that the recovery of German industry and thus the German economy is intact,” explained the scientific director of the Institute for Macroeconomics and Business Cycle Research (IMK), Sebastian Dullien. However, the election results in the USA also pose a risk to the boom in the construction of data centers. Democrats, who tend to be more skeptical about building data centers, have won in many US states. A number of referendums against data centers were also successful. “This could dampen German exports to the USA somewhat, as German companies recently benefited greatly from the AI boom in the USA as suppliers of electronic equipment and energy supply equipment,” said the IMK economist.
From the perspective of the Federal Statistical Office, the positive development of production in September is largely due to the 17.1 percent increase in the automotive industry. Here, production was at a low level in the previous two months due, among other things, to production changes and factory holidays. The 8.0 percent increase in the pharmaceutical industry, which rose after two weaker months, also provided support. The decline in construction production (-2.6 percent) had a negative impact. Production also fell in mechanical engineering (-6.5 percent).
IMK director Dullien explained: "This now shows that the weak production in vehicle production in July and August was to a noticeable extent due to the special situation of the summer holidays and factory holidays and that the underlying trend was somewhat better than some feared."
Orders important for economic growth
From the perspective of chief economist Thomas Gitzel from VP Bank, incoming orders and the order backlog are the decisive factors for the further development of industrial production. Both have recently shown a friendly tendency. The manufacturing industry as a whole has enough orders to accelerate German economic growth.
There is even positive news from the automotive industry again, he added. In his opinion, the restructuring will still take some time, but the good order intake in September fuels the hope that the automobile manufacturers will also bottom out. “Production will support economic growth in Germany in the coming quarters,” said Gitzel.
The German industrial sector received more orders again in September and thus recovered somewhat from the slump in orders in August. New business increased by 4.4 percent. “Robust incoming orders and order books that are already full to the brim in various industries should be a good foundation for further stabilization of production,” says Marc Schattenberg, economist at Deutsche Bank Research. This was also reflected in the recently significantly more optimistic sentiment indicators. However, high oil and gas prices as well as structural changes in key industries are likely to initially stand in the way of an even stronger recovery, according to the expert.
