German industrial production contracts in July, economy likely to decline slightly in Q3

The German industrial production continues to decline in July. The industrial production output contracted 0.8 percent sequentially, partially because of the early summer holidays, and an opposite effect could be anticipated in August.

The price-adjusted output in the manufacturing sector dropped 0.6 percent sequentially. In a narrow sense, industrial production dropped 0.8 percent. Outside industry, energy production dropped 1.3 percent sequentially. Construction output grew 0.2 percent.

The figures released today highlight again that the German industry is still a downward spiral. In fact, the fall in industrial production is partially linked to the comparatively early summer holidays, which had a more negative impact on production in July than is assumed in the seasonal adjustment.

Nevertheless, even if an opposite – that is positive – holiday effect could be expected in August, the general downward trend in industrial production is expected to continue, noted Commerzbank in a research report.

The purchasing managers’ index for the manufacturing sector continues to be subdued and the Ifo business climate has dropped significantly until recently. Moreover, the second part of the WLTP introduced in autumn 2018 is to be applied in September. The WLTP would then be supplemented by the RDE test, which measures emissions directly while driving on the road.

“In view of the weak expectations for industrial production, which in July is already 1.5 percent below the average for the second quarter, the economy as a whole is likely to see a slight decline in the third quarter”, added Commerzbank.