Germany may be tipping into a recession amid a sharp drop in industrial production as many German firms faced difficulties completing orders due to supply chain snarls caused by ongoing pandemic restrictions and the Ukraine war.
“We continue to expect a contraction of the German economy in the second quarter,” he said.
Besides the month-over-month decline in factory output, German industrial production was 3.5 percent down year-over-year.
The last time there was a sharper decline in German factory output was at the beginning of the COVID-19 crisis in April 2020, Germany’s statistical agency said.
“Many enterprises still have problems completing their orders because of interruptions in supply chains, which is due to continuing COVID-19 crisis restrictions and the war in Ukraine,” the Federal Statistics Office said in a statement.
“The new lockdowns in China and the war in Ukraine have not only created new supply chain and energy disruptions but also brought back last year’s supply chain frictions,” Brzeski said.
“Given the highly internationalised production processes in German industry, expect more semifinished products waiting in Germany for semiconductors or other input materials from Asia,” he added.
Germany’s statistical office also said that industrial companies received 4.7 percent fewer orders in March, marking the sharpest monthly drop since last October. The agency said the reason for the drop is fewer orders from abroad.
Other analysts have echoed ING’s call for an imminent German recession.
Supply shocks from China’s zero-COVID policy, Ukraine war-related disruptions, along with surging food and energy costs all feature as factors in the growing number of recession calls for the entire euro area made by some top European CEOs.