June 8, 2020 / 6:21 AM / a month ago

German industrial output posts record plunge, no quick recovery in sight

BERLIN (Reuters) - German industrial output posted a record plunge in April as the coronavirus pandemic forced manufacturers in Europe’s largest economy to halt production, with firms expecting a bumpy road ahead despite a massive stimulus package.

FILE PHOTO: A steel worker of Germany's industrial conglomerate ThyssenKrupp AG stands a mid of emitting sparks of raw iron from a blast furnace at Germany's largest steel factory in Duisburg, Germany. REUTERS/Wolfgang Rattay/File Photo

Industrial output dropped by 17.9% on the month, figures released by the Statistics Office showed. A Reuters poll had pointed to a slightly smaller fall of 16.0%.

Manufacturers of capital goods recorded the steepest decline of -35.3%. Output in the energy sector dropped by 7.2% and construction was down 4.1%.

As measures to contain the spread of the coronavirus were implemented from mid-March, the restrictions took their toll on a full scale in April, the Economy Ministry said.

“The low point has been reached. With the gradual easing of protective measures and the resumption of production in the automotive industry, the economic recovery is beginning now.”

The data strengthens expectations that the German economy will post its steepest decline since the end of World War Two in the second quarter.

“German gross domestic product is likely to shrink by more than 10% in the second quarter, a reading never measured before in peacetime,” VP Bank Group economist Thomas Gitzel said.

For 2020 as a whole, the government forecasts GDP will shrink by 6.3%, based on the assumption that a 130 billion euro ($146.69 billion) fiscal stimulus package will help economic activity pick up again in the second half of the year.

German Chancellor Angela Merkel’s cabinet plans a special meeting on Friday to start implementing large parts of the stimulus measures, three sources told Reuters on Monday.

The cabinet is expected to clear the way for the agreed temporary cut in value-added tax, cash handouts for parents and bigger incentives to buy electric cars, the sources said.

Despite the package, manufacturers expect production levels to decline further in the coming three months, but at a slower pace than previously, the Ifo economic institute said on Monday.

Ifo said its index for production expectations rose to -20.4 points in May from -51.0 points in April, marking the biggest monthly rise since German reunification three decades ago.

“But that only means that the nosedive is now becoming flatter,” said Klaus Wohlrabe, head of the Ifo surveys.

In a further sign that the recovery is likely to be slow and prolonged, a Civey survey for Augsburger Allgemeine newspaper showed that two-thirds of German consumers are not planning to buy more goods despite Berlin’s stimulus efforts.

Reporting by Michael Nienaber,; Editing by Michelle Martin and Ed Osmond

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