Wednesday 16 October 2019

Industry slows down in Germany and Ireland

German leader Angela Merkel on a factory tour yesterday: Photo:AFP via Getty
German leader Angela Merkel on a factory tour yesterday: Photo:AFP via Getty

David Chance

Germany and Ireland both reported lower levels of industrial production for August yesterday, although the impact on the two economies will be dramatically different as Europe's giant pushes closer to recession.

The Central Statistics Office data showed that industrial production here had slowed in the three months ending in August, from the prior three months and from August 2018, although the series is extremely volatile.

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The production index stood at 98.3 at the end of August, down from 105.9 in August 2018, while the three-month average dropped to 97.0, from a reading of 103.1 in the March to May period.

Recent survey data has indicated that manufacturing here has started to slow, as it has in most of the rest of Europe.

AIB's Manufacturing Purchasing Managers' Index showed a fourth consecutive month of weaker growth in September, something the bank said had started to feed into weaker hiring in industry.

Despite the weaker numbers, Ireland's PMI reading of 48.7 means it is still doing better than the eurozone, where the PMI score for August dropped to 45.6.

Ireland's economic growth was 6pc in the first half of this year, following a reading of 8.2pc in 2018, and most economists now expect it to outperform official forecasts of around 4pc for this year.

German industrial production fell 0.6pc from the previous month, a worse-than- expected outcome, according to data also released yesterday, setting the stage for a technical recession in Europe's largest economy. The country is the most exposed in Europe to a slowdown in the world economy and rising business uncertainty due to a trade dispute between the US and China, in large part due to its heavy dependence on cars and engineering goods.

"Looking ahead, we think the industrial recession is likely to drag on until well into next year," consultancy Capital Economics said of the German economy.

"The problems in the auto sector are clearly not just temporary, and both external and domestic demand looks set to weaken further," it added.

The economy here is far less dependent on manufacturing than Germany, and on 'old' industrial sectors such as cars.

Services account for 59.9pc of the gross value added economic output in Ireland and so far, the sector here has held up well, and is still expanding, albeit at a slower pace.

The biggest risk to the Irish economy in the near term is likely to be Brexit.

The Economic and Social Research Institute has warned a 'hard' Brexit at the end of October could push the economy into recession next year, blowing a hole in the Government's plans to run another budget surplus in 2020.

If there is a hard Brexit, the think-tank says the Government might end up running a deficit of 1.5pc of GDP.

Irish Independent

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