Chinese Demand Helps German Manufacturers Weather COVID-19 Pandemic

BERLIN: Germany’s industrial sector avoided a contraction in December despite coronavirus lockdowns at home and abroad as strong demand from China helped export-oriented manufacturers in Europe’s largest economy weather the COVID-19 pandemic.

Industrial output was flat on the month after an upwardly revised increase of 1.5% in the previous month, figures released by the Federal Statistics Office showed. A Reuters poll had forecast an increase of 0.3%.

This was the first stagnation following seven consecutive months of expansions.

The main drag came from construction where output fell by 3.2%. Looking at core manufacturing alone, output rose by 0.9% on the month.

The upwardly revised November figure helped overall industrial output in the fourth quarter to increase by 6.1% on the quarter.

“The German manufacturing sector has performed relatively well in recent months and that’s mainly thanks to the well-running Chinese economy,” VP Bank economist Thomas Gitzel said.

“If production in China is humming, local production is also humming here,” Gitzel said, adding that the German automobile industry with its premium cars was benefiting in particular from the good income situation in China.

DekaBank analyst Andreas Scheuerle also pointed to positive one-off factors in December related to the expiration of a temporary sales tax cut in January and British clients stocking up supplies in preparation for a possible no-deal Brexit.

OUTLOOK CLOUDED

In 2020 as a whole, production in the manufacturing sector tumbled by a calendar-adjusted 8.5% on the year, in further proof of the wider economic devastation caused by the pandemic.

The economy ministry said the outlook for the industrial sector remained subdued given further development of the pandemic and supply bottlenecks in the semiconductor industry. A drop in industrial orders and a decline in business morale were clouding the outlook further, it added.

Data last week showed that orders for German-made goods fell more than expected in December, ending a seven-month streak of positive data as restrictions to contain the coronavirus dragged down demand from other euro zone countries.

This followed a survey by the Ifo economic institute which showed that German business morale slumped to a six-month low in January as a second wave of COVID-19 halted a recovery in the economy.

The Ifo institute expects the German economy to stagnate in the first quarter while the Commerzbank predicts a decline.

The German government last month slashed its GDP growth forecast to 3% this year, a sharp revision from last autumn’s estimate of 4.4%. This means the economy probably won’t reach its pre-pandemic level before mid-2022.

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