Surprise Fall In German Industrial Production Worsens Recession Fears

Germany's industrial production unexpectedly decreased for a third straight month in November, amid a sharp fall in consumer goods and energy output, worsening fears of a technical recession in the biggest euro area economy.

Overall industrial production fell a calendar and seasonally adjusted 1.9 percent from October, when it decreased 0.8 percent, revised from 0.5 percent, preliminary data from the Federal Statistical Office showed on Tuesday.

Economists had expected a 0.3 percent increase. The latest decline was the biggest since a 2.3 percent slump in July.

Industrial production decreased 1.8 percent and construction output dropped 1.7 percent.

Manufacture of consumer goods fell 4.1 percent. Capital goods output fell 1.8 percent and production of intermediate goods shrunk 1 percent.

Energy output decreased 3.1 percent and construction production fell 1.7 percent.

Excluding energy and construction, industrial production decreased 1.8 percent from the previous month.

On a year-on-year basis, industrial production fell 4.7 percent in November after a 0.5 percent gain in October. Economists were looking for a 0.8 percent decline.

Production slowed in the key sectors and the problems related to the implementation of the WLTP emission tests continued in the automobile industry, the economy ministry said.

Data released on Monday showed that manufacturing new orders decreased for the first time in four months in November. However, higher order backlog in the manufacturing sector suggests that the industrial economy is gathering some momentum, albeit with subdued momentum, the economy ministry said.

Automobile industry logged a noticeable gain of 4.5 percent in orders in November.

The statistical agency is set to release the trade data for November on Wednesday.

"At face value, today's industrial production data has clearly increased the risk of a technical recession in Germany in the second half of 2018," ING economist Carsten Brzeski said.

"Watch out for tomorrow's trade data. Another disappointment, combined with the high inventory build-up in 2Q and 3Q, would clearly increase the likelihood of a technical recession."

The German economy shrunk for the first time since early 2015 in the third quarter and at the fastest pace in nearly six years, mainly due to weak exports and car sales. GDP fell 0.2 percent quarterly, marking the worst decline since the first quarter of 2013.

Another contraction in the fourth quarter would mean the economy has slipped into a technical recession, which is two consecutive quarters of negative growth.

That said, a technical recession should be nothing to be too worried about given a strong labor market, favorable financing conditions and signs of a pick up in the automobile industry, Brzeski said.