- German industrial production fell by 1.6% in December, a larger decline than analysts' expectations of 0.4%.
- Energy-intensive sectors saw a significant decline of 5.8%, with a notable decline in the chemical and construction industries.
- Although industrial orders rose by 8.9% due to exceptional demand for aircraft, the general trend of production remains downward.
The latest report from the German Federal Statistics Office on Wednesday revealed a worrying trend in the country's industrial production, with December seeing a 1.6% decline. This decline, significantly exceeding expectations, marks the seventh consecutive month of contraction, highlighting the growing challenges in the industrial sector, the cornerstone of the German economy. Analysts point to rising energy costs and falling demand, both domestically and internationally, as major factors behind this ongoing contraction.
Cross-sector impact: energy and automobile differentiation
December's decline had a mixed impact across various industry sectors. Energy-intensive industries bore the brunt, with production falling by 5.8%. Notably, the chemical industry, vital to Germany's industrial landscape, saw a 7.6% decline in production. The construction sector also faced challenges, recording a decline of 3.4%. Conversely, the automobile industry offered a ray of hope, showing a 4.0% increase in production, softening the overall hit to industrial production.
GDP concerns and demand variation
The continued declines have heightened concerns about a possible downward adjustment to Germany's GDP growth in the fourth quarter. With GDP already contracting by 0.3% in the fourth quarter of the previous year, the continued decline in industrial production increases the likelihood of a recession. In contrast, December witnessed a surprising 8.9% rise in industrial orders, supported by a notable increase in aircraft orders. However, despite this rise in orders, the prevailing trend indicates that the sector has not begun to recover. This discrepancy between rising orders and falling production highlights the multi-faceted challenges facing the German economy, with overall production in 2023 falling by 1.5% from the previous year's levels.
