German production shrinks unexpectedly in February

Despite full order books, German companies put the brakes on production again in February. Industry, construction and energy suppliers together produced 1.6 percent less than in the previous month, as the Federal Ministry of Economics announced. Despite the corona pandemic, economists had expected an increase of 1.5 percent after there had already been a decrease of 2.0 percent in January. Foreign trade did better: exports grew by 0.9 percent in February, also due to the booming China business, and thus for the tenth month in a row. Imports even increased by 3.6 percent. "German foreign trade continues to grow and is slowly approaching the pre-crisis level again," said the president of the export association BGA, Anton Börner. "What is currently weighing on German industry is not a lack of demand," said DekaBank economist Andreas Scheuerle about the unexpected decline in production. "Instead, there are delivery bottlenecks for raw materials and components as well as tight transport capacities, especially on the route between Asia and Europe." As a result, production has been burdened for some time. The automotive industry, for example, is complaining about a shortage of semiconductors. "This production backlog in turn allows the order backlog to rise to a record level," said Scheuerle. "In the future, the processing of the order backlog and the refilling of the warehouse are likely to generate additional economic impulses." However, with the dip in February, it becomes more likely that the German economy contracted in the past first quarter. UniCredit economist Andreas Rees expects a decline in gross domestic product of around 2.5 percent. In the current spring quarter, however, industry is likely to become a pillar of the economy again. "We are assuming that the German economy will grow significantly this year," said Economics Minister Peter Altmaier, who has so far assumed an increase of three percent. Europe's largest economy should return to its pre-crisis level in 2022. A strong recovery in 2021 speaks for itself: Production expectations are currently higher than they have been in 30 years. The corresponding indicator jumped 8.9 to 30.4 points in March, as the Ifo Institute announced in its monthly survey of companies. "The order books are filling up, and there is still a lot of catching up to do after the crisis year," said Ifo expert Klaus Wohlrabe.