Contraction fears rise as German factories wilt

Disappointing production figures increase the pressure on an economy back in lockdown

German industrial might is wilting in the face of the Covid-19 crisis as Europe’s biggest economy attempts to stave off a double-dip recession.

September figures showed a weaker than expected 1.6pc rise in output over the month, leaving production still almost 8pc below pre-pandemic levels. 

Economists warned that its industrial sector represented Germany’s “only hope” of avoiding a renewed slump following the nation’s move into a month-long partial lockdown this week with bars, restaurants, gyms, cinemas and theatres all closed.

Chancellor Angela Merkel has warned of a “long, hard winter”.

Although bright spots included a 10pc rise in car production - Germany’s biggest manufacturing sector - during September, the overall rise was well below the 2.7pc forecast.

Survey evidence of a first decline in services activity for four months during October this week also underlined the pressure on manufacturers.

The closely watched business survey of German industry by the Ifo Institute offered some comfort on Friday as it signalled the majority of firms were planning to expand production in the months ahead. 

But the pace has slowed and Ifo economist Klaus Wohlrabe said: “It remains to be seen to what extent the current corona restrictions will affect industry.”

Carsten Brzeski, European economist at ING Bank, said industry was “the German economy’s only hope to possibly still avoid a contraction”. 

He added: “Despite some weakening, production expectations were still strong in October and order books had quickly filled again after the lifting of the lockdown measures. However, given the sentiment impact from the latest lockdown measures, but also weaker foreign demand as many other eurozone countries have also gone into lockdown again, this positive momentum will in our view not be enough to avoid this double dip for the German economy.”

The German economy grew by a record 8.2pc in the third quarter on higher consumer spending and exports, but an aggressive second wave of infections and a new partial lockdown are now clouding the outlook for the fourth quarter and beyond.