The German economy is in trouble and the latest industrial production numbers suggest that this decline is far faster than anyone had anticipated. The majority of analysts expected to see some reduction German manufacturing output, but nobody seems to have expected a 4.0% reduction that took industrial output to the levels of the recession in 2009—most thought there might be a reduction of perhaps 1.5% at most. The headwinds are reaching gale force, and they are both self-inflicted and out of their control.
The biggest problem is that exports are way below what they have been—falling from an average growth of around 8% to less than 1% and, in some months, slipping into negative territory. Germany has really only one viable export market left and that is the US. As important as that is to the German economy, it is not enough to offset the loss of Europe as a whole and the slowdown in demand for China. China buys German machinery—not consumer goods—and right now China is not seeing growth at anything near the levels of the past. German consumer goods usually go to the other nations in the euro zone, but most have experienced a drop in economic growth some months or years ago, meaning they are aren’t buying much.
Another factor is that German support for sanctions against Russia over the invasion of Ukraine has caused near panic in the markets. The Germans do not have an alternative to Russian gas this winter and the projections have been bleak—assertions that there will be interruptions in service and far higher prices as Germany will have to turn to very expensive alternatives for their gas. These are going to be costly supplies. Even if Germany is willing to pay, there is not enough available to meet the demands of the country. This could be a very cold and challenging winter unless the Germans back away from these sanctions.
- Armada Corporate Intelligence