German industry will not be able to fully shake off the effects of the recession it has experienced in recent years, according to research by Bloomberg Economics.
As expectations rise for a rebound from the Covid pandemic and the recent energy crisis, Bloomberg analysis shows that half of the 7% decline in manufacturing activity will persist.
“A cyclical industrial recovery is expected as monetary policy eases and demand returns,” said Martin Ademeier, an economist at Bloomberg Economics in Frankfurt. “But there will be no return to pre-2019 levels. The sector appears to have taken a permanent hit.”
Value added decline
Bloomberg models show that the annual growth rate of potential gross value added in the manufacturing sector slowed to 0.5% last year from 1.5% in 2019, and the slowdown is estimated to result in a 3.5% shortfall in capacity compared to a simple extrapolation of 2015-19 rates.
The German central bank expects growth of 0.3% this year, saying the economic recovery is “continuing”, but the recovery in the manufacturing sector remains slow.
Recent data showed a decline in industrial production and factory orders, failing to ease concerns about a resurgence.
Industrial production in Germany fell unexpectedly in May, adding to signs that the manufacturing sector in Europe’s largest economy will not recover in the coming months.
Industrial production
The Federal Statistics Office said industrial production fell 2.5% in May compared to the previous month, contrary to analysts’ expectations.
The office revised its data for April up 0.1% on a monthly basis instead of down 0.1%.
A quarterly comparison showed that production in the period from March to May remained stable at the same level as the previous 3 months, according to Reuters.
