German Industrial Output Falls, Adding to Recession Fears

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The German economy is facing a sharp downturn as its industrial output declined more than expected in March due to a heavy fall in car manufacturing, according to official data released by the federal statistics agency Destatis on Monday. The output dropped 3.4 percent on the previous month, seasonally adjusted figures showed, following two strong months of growth in January and February. This was worse than the one percent decline forecast by analysts surveyed by financial data firm FactSet.

The news comes after data released last week showed a surprise plunge in new orders at German factories, as the country's vast industrial sector is pummelled by high energy prices following Russia's invasion of Ukraine. This latest batch of negative data has fuelled fears that Germany, Europe's top economy, may be on the brink of a recession.

The automotive industry was a major contributor to the decline in March, with the manufacture of vehicles and parts falling 6.5 percent. This compared to a 6.9 percent increase in February. Germany is home to carmakers including Volkswagen, BMW and Mercedes-Benz, and the auto sector is a pillar of the country's industry. There were also heavy decreases in the manufacture of machinery and equipment, as well as production in the construction sector.

The figures "underline that the dangers of recession have by no means been averted," said LBBW bank analyst Elmar Voelker. However, the economy ministry insisted that business sentiment had been improving recently, which "points to an economic recovery in the course of the year". After contracting at the end of 2022, the German economy dodged a recession in the first quarter of this year, registering flat growth. The German government has forecast growth of 0.4 percent for the whole of 2023.

Despite the improved business sentiment, the latest data suggests that Germany's economy may still be vulnerable to external shocks. In addition to Russia's invasion of Ukraine, the global supply chain disruptions caused by the COVID-19 pandemic and the ongoing semiconductor chip shortage have also weighed on the country's industrial sector. As a result, experts suggest that the German government needs to introduce stimulus measures to support the country's economy and prevent a recession.

The European Central Bank has also warned that the economic recovery in the Eurozone, of which Germany is a part, remains uneven and uncertain. While some countries such as France and Italy are expected to see a stronger recovery, others such as Spain and Portugal are likely to lag behind due to slower vaccination rates and weaker economic fundamentals.

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