Germany’s Industrial Production Slowdown Sparks Concerns Of A Recession

Industrial production figures released over the week showed an unexpected decline in November. The data reflected a mix of headwinds facing Europe’s largest economy amid rising trade tensions and softer global demand. A monthly survey from the European Commission released last week showed that business confidence fell sharply in December. Various regional manufacturers including Spain, France, Italy, and Germany are downgrading their expectations on business outlook.

The weak patch of data comes as the Federal Reserve has been on policy tightening path. It aims to find a balance between higher interest rates to rein inflation and the global markets.

ECB has also reasons to be concerned

A slowdown from Germany will no doubt raise concerns for the European Central Bank which recently announced an end to its QE program which spanned over the years. Interest rates should remain steady until the middle of next year.

However, the Eurozone’s economy has been rising at a slower pace than what ECB officials had previously estimated. The first slowdown in the third quarter matches the temporary factors such as the automobile emission standards. However, the data released recently showed otherwise.

The ECB will likely face with a tough choice if the German economy continues to slide further. It could spark concerns of a recession, with the ECB’s interest rates near record lows. The Central Bank argued that its bond purchase program was the biggest driver of growth in the Eurozone’s economic recovery.

However, with the QE program ending in December, the slowdown could potentially come back to haunt the policymakers at the central bank.

Some of Germany’s key industrial sectors slowed when adjusted for inflation and seasonal changes. Industrial production dropped 1.9% in November compared to the month before. This was worse as economists forecasted an increase of 0.3%.

Industrial production fell for the second consecutive month as the data for October revised down to show a 0.8% decline on the month.

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