FX.co ★ Germany Industrial Output Declines Most Since April 2020

German industrial production declined the most in nearly two years in March, underscoring the impact of the war in Ukraine as suggested earlier by other economic reports released over this week.

Industrial output decreased 3.9 percent month-on-month in March, reversing February's revised 0.1 percent increase, data from Destatis revealed on Friday. Economists had forecast a moderate fall of 1.0 percent in March.

A larger decrease was last registered in April 2020, at the beginning of the Covid-19 pandemic.

Excluding energy and construction, industrial production decreased 4.6 percent in March.

Within industry, the production of capital goods declined 6.6 percent. The production of intermediate goods and that of consumer goods dropped 3.8 percent and 1.5 percent, respectively.

Energy production dropped 11.4 percent on month in March. By contrast, construction output grew 1.1 percent.

Year-on-year, industrial production logged a decline of 3.5 percent after rising 3.1 percent in February.

The slump in output in March shows that the war in Ukraine is hitting manufacturers hard even before a ban on Russian energy imports has taken effect and before the ECB has raised interest rates, Andrew Kenningham, an economist at Capital Economics, said. The economist noted that this is the start of a deep manufacturing downturn which is likely to drag the entire economy into recession.

In the short run, the three pillars of Germany's successful economic business model, exports, industry and energy, have become Germany's Achilles' heel, ING economist Carsten Brzeski said. According to the recent survey data from the ifo Institute, the shortage of materials in German manufacturing has become more severe. In March, 80.2 percent of companies complained about bottlenecks and problems procuring intermediate products and raw materials.

Data released earlier this week showed that the decline in factory orders deepened to 4.7 percent in March from 0.8 percent in February. Germany's exports declined 3.3 percent in March, reflecting the 62.3 percent plunge in shipments to Russia.

The Purchasing Managers' survey showed that Germany's private sector growth slowed in April as the recovery in the service sector was offset by the downturn in manufacturing. The composite output index fell to 54.3 from 55.1 in March.