EU Economy
German industrial production may expand only ¾% in 2015
By Michael Hennigan, Finfacts founder and editor
Nov 4, 2014 - 8:54 AM

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German machinery and equipment orders jumped 13% in September compared with the same month last year, the German Engineering Association (VDMA) said Monday. However, a forecast of industrial production issued last Thursday is not optimistic about the outlook in 2015.

Orders from buyers based outside Europe grew by 24% according to the VDMA, while domestic orders slumped by nine percent.

Deutsche Bank economists say [pdf] that following weak performance in winter half-year 2014/15 industrial production in Germany is likely to return to a moderate uptrend in the course of 2015, resulting in expansion of roughly 1.5% in real terms in 2014 and about ¾% in 2015. This means the generally muted dynamics of industrial performance in evidence since 2011 would continue in 2015. "Industry's share in total German gross value added (2013: 21.8%) will probably decline again, as in 2012 and 2013."

The economists expect both the automotive industry and mechanical engineering to increase their output by roughly 1% in 2015. They say that while mechanical engineering should thus slightly improve its performance over 2014 (stagnation), the car industry should see its growth cool noticeably (2014: +4%).

Electrical engineering is poised for a round of stagnation in 2015 – following a 1.5% increase in 2014. Chemicals production is likely to add 2.5% in 2015; however, this would "only" neutralise the setbacks in 2014.

Deutsche Bank says that the only moderate growth of industry is primarily attributable to the currently subdued level of business activity and external shocks. Nonetheless, structural factors are going to regain importance. "The ball is now in the politicians' court. Many of their recently adopted measures give rise to fears that Germany's international competitiveness as an industrial location is likely to decline."

To ensure profitable production in Germany in the long run against the backdrop of globalisation the country needs to offer a coherent policy environment, according to the economists.

"When Germany was the 'sick man of Europe' roughly ten years ago, this also applied to some segments of German industry. Today, thanks to the policies of the Agenda 2010 and various entrepreneurial measures, German industry is in excellent shape compared with its counterparts in the EU. However, many of Germany's old and new competitors are located outside of Europe. Globalisation is a demanding taskmaster, but German industrialists and Germany as an industrial location have the potential to cope with the challenges in the long term."

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