February 13, 2012
German industry can look back to two all in all strong years with high growth rates. 2012, however, will be a markedly weaker year, in which industrial production should stagnate – albeit at a high level. The downswing has been perceptible since mid-2011: the eurozone crisis and the international growth slowdown are having a dampening effect on German industry as well.
In 2011, German industry again recorded a strong year with real production growth of 9% yoy (11.5% in 2010). German companies have thus managed to make up for the slump of 2009 which was due to the international financial and economic crisis. The strongest growth sectors in 2011 were electronics (production index: +14%), the automotive industry (+13.4%), mechanical engineering (+13%) and metal production (+12%). Stimulus came from both the domestic and the foreign markets. Especially in the export-strong sectors mechanical engineering and the automotive industry, but also in the pharmaceutical sector, foreign demand exceeded domestic order growth. In the consumer-related sectors textiles and garment business, production rose marginally in 2011.
Skid marks since mid-2011
Despite this overall positive picture there is no denying that there have been clear signs of a slowdown since mid-2011. It was hardly surprising that the slowdown in the early-cyclical sectors such as the chemical industry, which produces mainly primary and intermediate products, set in early. While the cyclical slowdown in the automotive and electronics industries did not set in until the autumn, the setbacks have become more pronounced now, however. Furthermore, capacity utilisation fell from its high of close over 86% by 2 pp in the second half of 2011.
Stagnation at a high level possible in 2012
The outlook for 2012 is subject to strong uncertainties. True, investors’ scepticism with regard to EMU has calmed down somewhat. In addition, stock markets have moved upward since the start of the year. The EMU crisis is far from being settled, though. Mainly the necessity of fiscal consolidation of the public sectors is dampening growth in numerous EMU countries. This also applies to orders of German industrial companies. Orders from eurozone countries fell by 6.8% (Nov -4.8%). This is likely to weigh on mechanical engineering, for example, for which Italy and France are among the five most important markets. The German automotive industry also sells roughly half of passenger car exports in western Europe. By contrast, the sound growth in the Asian market should have a stabilising effect in 2012. The Chinese economy – an important market for machinery, cars and electronics – will grow by somewhat more than 8% in 2012. True, the growth dynamics will be weaker than in the preceding years (2011: +9.1%; 2010: +10.3%), but they will continue to be robust and offer opportunities to the German producers of machinery and equipment and consumer goods. This will also benefit electronics, which posted remarkable sales growth in China already in 2011.
Recovery of industrial sector in the second half
The slight relief of the EMU debt crisis has also contributed to an improvement in sentiment in German business. In January, the ifo Index rose for the third time; the manufacturing business climate only rose for the second time, to currently 104.2. True, the balance of positive and negative views with regard to the business outlook is still slightly negative in most sectors of industry. The trough has probably been passed, though. In the early cyclical chemical sector the balance of business expectations already has reached positive territory again. This suggests that industrial production, following a weak first half, will begin to rise again at mid-year.
For example, the car sector could expand its production in 2012 at a high level by roughly 1% in real terms. The marked growth slowdown compared to 2011 is mainly attributable to the lower dynamics of car business in important export countries (e.g. China) but also in Germany. Mechanical engineering should gradually almost fully offset the weak turn of the year 2011/12 in the course of 2012. The improvement in the global economy in the further course of this year will also benefit steel and iron. Metal prices should rise already before production. The business expectations of the German electrical engineering sector brightened strongly at the start of the year. Starting from a negative overhang, we expect zero growth in the German electronics industry for the year as a whole; here as well, dynamics should increase in the winter half. Production in the chemical industry shows a similar picture but will fall by roughly 2% in 2012.
Production in the textile industry should weaken slightly in 2012, while in the garment business structural reasons (transfers of production) will again lead to noticeable declines in domestic production. The performance of the food sector and the pharmaceutical sector is – like mostly in the past – very stable. Here, no big surprises are on the horizon for 2012. In our overall scenario, we come to the conclusion that a stagnation of German industrial production at a high level in 2012 is a realistic forecast.
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