German industry predicts rise in output

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The FINANCIAL — German manufacturers ramped up production for the third straight month, though the pace of growth slowed in July. Industrial output rose 1.2 percent, less than forecast by economists. The increase was led by carmakers while machinery retreated. Investment-goods production still increased by 2.1 percent. German industry sees growth in output and orders weakening The Economy Ministry said that Germany’s industry is back at nearly 90 percent of pre-crisis levels, and also predicts that improved sentiment and declining short-time work will continue to drive the recovery, but it will take some time. Another report on Friday showed that factory demand slowed down.

German industrial firms which were battered by the coronavirus-induced economic downturn expect production to increase slightly in the coming months, a survey by the Ifo institute showed on Monday. “The industrial sector – the engine of Germany’s economy – Is gradually getting back on track,” Klaus Wohlrabe, who runs surveys at Ifo, said. The Ifo indicator rose to 15.4 points in August from 14.3 points in July. For the first time in more than a year, engineering firms expect to expand production while carmakers still see output increasing, but were not as optimistic as in the previous month. The Federal Statistics Office is due to publish industrial output data for July at 0600 GMT, with economists polled by Reuters forecasting a 4.7% increase, Data published on Friday showed orders edging up in July, as reported by Reuters.

Germany’s economy is trying to claw back the ground it lost during months of lockdowns that left factories shattered and many workers furloughed, if not unemployed. While the economy has seen a sharp rebound over the summer, Bundesbank President Jens Weidmann has sought to temper optimism, arguing last week that the recovery will be long and bumpy. What Bloomberg’s Economists Say “Germany industry’s position in global value chains means a full recovery won’t come until the rest of the world recovers too. Covid cases are rising in parts of Europe and the U.S. and emerging markets are experiencing a protracted downturn.” — Jamie Rush. Some recent indicators suggest momentum has also started to flag in some parts of the euro area amid resurgent infections and concerns about potential restrictions. A number of governments have imposed new travel curbs and ordered citizens to wear masks. The uncertain outlook is set to feature prominently in discussions when European Central Bank officials meet this week. Most economists predict the Governing Council will keep policy unchanged on Thursday, although they expect another increase in asset purchases before the end of the year, according to Bloomberg.

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For the first time in a year or so, machine-builders expect production to expand again, and expectations in metal production and processing showed a positive reading for the first time in almost two years with plus 5 points, up from minus 11 in July. Automotive companies continue to expect an increase in their production but are not quite as optimistic as they were in July, according to the Ifo index. “The German economy remains on track for a strong surge in the third quarter,” ING chief eurozone economist Carsten Brzeski said in a note. “It is too early to tell how much momentum will be left thereafter.” A separate study from the German economic institute on Monday said that the powerful car industry is now no longer the main engine for of the country’s economy. It is struggling with a collapse in demand from the COVID-19 pandemic, and is also contending with the switch to electrification, which threatens traditional auto supplier firms and puts jobs in jeopardy, Yahoo News wrote.

Already before the global COVID-19 pandemic hit, the automotive industry was struggling with overcapacity, as well as the need to invest billions to switch to electrification, and get their fleet emissions down in the face of tough new EU emissions standards. Hildegard Müller, president of the German Automotive Industry Association, warned in July that even Germany’s furlough scheme, which sees the government pay 60% of workers’ salaries so employers don’t have to let them go, will no be enough to mass industry layoffs. Smaller suppliers are especially vulnerable, while big car corporations have the power to retool and switch to the production of electric vehicles, these small companies, which make parts for internal-combustion-engine cars, don’t have that option. The German economic institute notes in its 45-page report that the car industry is still central to the country’s economy, representing 9.8% gross added value. It directly employs around 800.000 people, rising to a total of 936,000 if one includes supplier companies, from electrical engineering, to metal production. While the German government agreed on buyer-discounts for clean-energy cars as part of its stimulus package, it decided not to support a cash-for-clunkers scheme, or other buyer incentives for fossil-fuel engines, as reported by Yahoo Finance.

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USA’s real gross domestic product (GDP) decreased at an annual rate of 32.9 percent in the second quarter of 2020, according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 5.0 percent. The decline in second quarter GDP reflected the response to COVID-19, as “stay-at-home” orders issued in March and April were partially lifted in some areas of the country in May and June, and government pandemic assistance payments were distributed to households and businesses. Read more

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