German manufacturing industry has recovered strongly from the deepest recession in its history. However, the way back to former output levels is still very long: Industrial production in Germany plummeted by more than 23% between the peak of the latest economic cycle in the first quarter of 2008 and the trough in the second quarter of 2009 (based on seasonally adjusted data and a three-month moving average). Output has since increased by 9%, starting from a low level. However, two years after the beginning of the crisis, the current production level is therefore still roughly 17% below the historical peak (not to be confused with historic peak!).

A report by Deutsche Bank Research published on Thursday, says that among the six largest industrial sectors in Germany, which account for 66% of total sales, the automotive and the metal industry recorded the steepest decline in production: Output fell from peak to trough by more than 38% in both sectors. In the car industry an even deeper slump was prevented through subsidies for car sales in many countries. Barely less dramatic were the decreases in production in the mechanical engineering industry (-30.6%), the electrical engineering industry (-27.7%) and the chemical industry (-27.1%). The food industry (-3.6%) was the only sector where the crisis left only marginal marks; this sector is characterised by its relative independence from macroeconomic cycles due to the inelastic demand for food.

From the peak in the first quarter of 2008 to the trough in the second quarter of 2009, orders fell by almost 36% (based on seasonally adjusted numbers). The steepest declines were reported in the metal industry (-50.3%) and in the mechanical and electrical engineering industries (-47.6% and -44.3%, respectively).

Order intake in the entire German manufacturing industry has recovered by almost one-quarter since the latest trough. Stronger impetus has been coming from foreign orders due to higher economic momentum outside of Germany and the recent weakness of the euro. However, domestic orders have also improved significantly of late. As with output in German industry, the way back to the old peaks in order intake is still long: At the end of Q1 2010 total orders were still roughly one-fifth below the top pre-crisis level.

The report's authors, Eric Heymann and Tobias Just, say that the automotive sector and mechanical engineering industry sold in 2009 roughly 60% of their overall sales volume abroad.

The economists say those sectors for which Asia/China and the US are important export markets are benefiting from the greater economic momentum in these regions. This applies for example to mechanical and electrical engineering, the automotive sector and the chemical industry and to a significant lesser extent to food and metals.

They calculate that although economic growth in many countries will fall in 2011, the overall outlook for exporting industries remains positive for 2011.

Heymann and Tobias Just conclude that hope the economic upswing in Asia and the US alone will lead the German industry back to pre-crisis output levels will still be dashed -- at least in the short term. It will take a minimum of two to three more years until the manufacturing industry on average will have reached its old peaks again.