Welcome to the euro crisis, Germany. German industrial production dropped by 2.2% MoM in April, providing evidence that the economy has finally caught the euro crisis virus. In annual growth terms, industrial production is down by 0.7 %. The drop was driven by all sectors, except for energy production. Production in the construction sector saw a drop by 6% MoM, from the strong weather-driven rebound in March (+26% MoM). At the same time, production of capital and consumer goods decreased by 3.6% MoM and 3.7% respectively.
The German economy’s immunity against the Eurozone sovereign debt crisis is clearly fading away. Strong growth in the first quarter could only temporarily put a gloss on the fact that the Eurozone’s biggest economy is also faltering. Latest drops in confidence indicators and shrinking order books do not bode too well for the near term outlook for German production. New orders from other Eurozone countries are currently down by more than 15% YoY and orders at hand are dropping and now at their lowest level in almost two year. At the same time, companies have started to reduce inventories. The safety net of low inventories and richly filled order books has become much thinner recently.
Even if it will not fall, the Eurozone’s last stronghold is faltering. For the time being, it is a stabilisation at a high level. However, latest data clearly indicate that Germany is not an economic island. The debt crisis has finally reached the German economy.