German industrial production fell more sharply in March than the market had expected, partly due to a poor performance by the car industry, which has raised fears of a recession this winter.

German industrial production fell 3.4 percent in March from the previous month after rising 2.1 percent in February, the Federal statistics office said on Monday, far more than analysts’ expectations of a 1.3 percent drop.

The economy ministry admitted that the March figures showed an unexpected fall after a strong start to the year in manufacturing production.

German motor vehicle and auto parts manufacturing output fell 6.5 percent month-on-month in March, the statistics office data said. Machinery and equipment production fell 3.4% in the month. Construction output fell 4.6 per cent. In addition, German industrial orders fell by an adjusted 10.7 per cent month on month in March, the biggest month-on-month drop since 2020.

The grim decline in manufacturing suggested Germany’s gross domestic product performance in the first quarter was likely to be poor, adding to concerns about economic growth for the rest of the year.

Almost all of them are weak

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Ralph Solveen, chief economist at Commerzbank, said German manufacturing had become increasingly weak from global interest rate hikes, which were gradually showing their side effects and the risk of a recession in Germany was rising.

According to ING economist Carsten Brzeski, Germany’s industrial macro data for March almost all took a tumble: retail sales and exports fell sharply, and with the industrial production data just released, the likelihood of a downward revision in German GDP growth in the first quarter increased.

In addition, consumers are now prioritising spending on services over goods, meaning manufacturers are struggling to secure new orders and have to rely on a backlog of demand during the pandemic. This may support current production, but it will not sustain manufacturing operations.

Allianz Chief Economist Ludovic Subran further explained that the second quarter was particularly difficult for the German construction industry as the backlog of orders was running out. The third quarter was unkind to the industry, also because existing orders are running out and no new ones are coming in. He warned that markets would see a very strong economic slowdown, with Germany as a microcosm.

Vincent Chaigneau, head of Generali Investment Strategy Research, describes another phenomenon, strength in the services sector and weakness in manufacturing, and it’s not just in Germany.

‘It’s true in Europe, it’s true around the world,’ he added. At best, some economies could escape recession, but they could still suffer from stagnant growth.