German industrial production continued to decline for the fourth consecutive month in August, reaching its lowest level this year, according to data from the Federal Statistical Office. The 0.2% drop in production was driven by a slowdown in construction and the rising costs of energy.
The continuous decline in factory output reflects the ongoing challenges faced by German factories and the country’s economy as a whole. These challenges include poor external demand, particularly from China, shortages of skilled workers, high interest rates, and the lingering effects of last year’s energy crisis.
Markus Steilemann, president of the chemical association representing industry giants such as BASF and Evonik Industries, commented on the seriousness of the situation and the negative sentiment in the industry. He referred to a survey in the chemical sector that highlighted the industry’s decline due to weak demand and persistently high energy prices.
The chemical industry’s concerns about unaffordable energy costs have led some companies to consider relocating parts of their production abroad.
The weak performance of Germany’s largest economy has not gone unnoticed by European Central Bank President Christine Lagarde. She acknowledged that Germany’s weakness is weighing on the entire European Union.
Lagarde also pointed out that Germany’s economic model heavily relied on cheap energy supplies and export opportunities, especially to China. The necessary adjustment in the German economy is having an impact on the growth outlook.
Economists are now expressing concerns about Germany’s economic prospects in the second half of the year, given the continuous decline in industrial production. Tighter financing conditions, weak global demand, and higher energy prices are expected to contribute to a contraction in GDP in the third quarter. Bloomberg’s Martin Ademmer predicts that GDP growth may only be marginal in the final quarter of 2023.
Some estimates suggest that Germany’s GDP may have contracted by 0.1% in the third quarter and could shrink by up to 0.6% for the entire year.
The decline in factory output and the challenges facing the German economy highlight the need for measures to address the issues of weak demand, high energy costs, and the shortage of skilled workers. These factors are crucial for the recovery and future growth of Germany’s industrial sector and economy as a whole.
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