German Industrial Output Drops on Machinery Orders

By Gabi Thesing

Dec. 8 (Bloomberg) -- Industrial production in Germany, the world’s biggest exporter, fell more than economists forecast in October after demand for plant and machinery faltered.

Output dropped a seasonally adjusted 2.1 percent from September, the Economy Ministry in Berlin said today. Economists expected a decline of 1.9 percent, the median of 39 forecasts in a Bloomberg News survey showed. From a year earlier, production adjusted for working days fell 3.8 percent.

Companies are reining in manufacturing and shedding jobs as the global financial crisis that originated in the U.S. and pushed Europe into recession damped global demand. U.S. President elect Barack Obama pledged the biggest public works program in about 50 years to stimulate growth and preserve jobs in the world’s largest economy. German factory orders dropped more than expected in October after posting a record decline the previous month.

“The outlook for German industry is catastrophic,” said Juergen Michels, an economist at Citigroup Inc. in London. “While the sector was the locomotive for the boom it will now drag the economy into its worst recession since the end of World War II.” Michels predicts the economy will contract 1.5 percent next year.

The ministry revised last month’s production figure to a 3.3 percent decline from an initially reported 3.6 percent, according to today’s statement. This month’s drop was led by a 3.1 percent slump in investment goods such as plant and machinery.

Global Recession

The euro-area economy fell into its first recession in 15 years in the third quarter. The International Monetary Fund predicts it will shrink by 0.5 percent next year as the world’s advanced economies suffer their first simultaneous recession in more than 60 years. Global growth will slow to 2.2 percent, meeting the organization’s definition of a recession.

Germany exported goods for 969 billion euros ($1.25 trillion) last year, 65 percent of which went to European Union countries. The VDMA machine makers association said last week that orders for plant and machinery dropped 16 percent in October from a year earlier, led by a decline in export demand.

Governments worldwide have introduced packages to buttress their economies from the worst financial crisis since the Great Depression as more than $31 trillion has been erased from the value of global equities so far. German lawmakers last week backed a stimulus plan that aims to unlock 50 billion euros ($64 billion) of investment.

Severe Adversity

Even so, “the continuing adverse factors going into next year are to be rated as severe,” Germany’s Bundesbank said Dec.5. “Against the backdrop of slower orders for the past few months we expect industrial output to weaken in the coming months,” the Economy Ministry said.

Rheinmetall AG, the Dusseldorf-based auto-parts and weapons supplier, will eliminate 750 jobs, reduce fixed costs by 50 million euros and extend Christmas production breaks because of slowing demand from car makers.

The credit crunch and recessions in the U.S. and Europe have plunged the auto industry into what General Motors Corp. has called the worst crisis since 1945. The sales slump has prompted German automakers, including GM’s Opel unit, Daimler AG’s Mercedes-Benz and Bayerische Motoren Werke AG, to cut production by more than 200,000 vehicles this year, putting pressure on suppliers.

To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net