German manufacturing production rises slightly in August, but downward trend likely to continue

German manufacturing production rose a bit in August; however, the general downward trend is expected to continue, noted Commerzbank in a research report. Production in the manufacturing sector rose 0.3 percent sequentially in August, with energy production dropping 1.7 percent and construction output falling 1.5 percent. Stripping these two sectors, the industrial production rose 0.7 percent.

On the contrary to the average economists’ expectations, industrial production did not stagnate in August. Nevertheless, there are several reasons to believe that the general downward trend might continue. Firstly, the fall in new orders data seen yesterday affirmed its downward trend. Typically, industrial production is following the trend calculated on the basis of orders received in recent month. The gap opened up with today’s figure and therefore will close again.

Secondly, the leading indicators do not give hope for an imminent turnaround for the better. On the contrary, concerning the Ifo business climate, the expectations for the six months ahead dropped again in September. The purchasing managers’ index for the manufacturing sector dropped to its lowest level since the financial crisis at 41.7.

And thirdly, the worries of the export-oriented industry are entirely justified, said Commerzbank. The U.S.A. is growing slightly weaker, the rest of the euro area is experiencing an economic soft patch and there are no signs of a rebound even for China.

“For German industry and the economy as a whole, things are likely to look bleak for some time yet. Gross domestic product is likely to have slightly declined in the third quarter, which would fulfil the criterion of a technical recession. A significant recovery is also unlikely in the fourth quarter” added Commerzbank.