Europe Economy

Germany's economy had its 'worst month ever' at the height of lockdown

Key Points
  • Industrial production fell by 17.9% in April from the previous month, following a 8.9% drop in March.
  • The data marked "the largest decline since the beginning of the time series in January 1991." 
  • The sharpest drop in production was seen in the auto industry, which recorded a decline of 74.6% month-on-month.
A conditioner cuts pipes in the Central Active Workshop of Energiewerke Nord GmbH (EWN),
ullstein bild

Germany's industrial production fell so sharply in April, at the height of the coronavirus lockdown in the country, that one economist has called it "the worst month ever" for the German economy, a key growth driver for the euro zone.

Industrial production fell by 17.9% in April from the previous month, following a 8.9% drop in March. Compared to the same month in 2019, industrial production declined by 25.3%, Germany's statistics office Destatis said Monday, noting that the drop was "the largest decline since the beginning of the time series in January 1991."  The sharpest drop in production was seen in the auto industry, which recorded a decline of 74.6% month-on-month.

The numbers come after data Friday showed orders for Germany's industrial goods in dropped 25.8% month-on-month in April, again the worst number since records began in 1991.

"Another sharp drop in industrial production shows that April 2020 will be the worst month ever for the German economy," Carsten Brzeski, chief economist of euro zone and global head of macro at ING, said in a note Monday.

"Two months of Covid-19 have already left a more adverse impact than the entire financial crisis," he added. "Today's data also illustrates how an open economy like Germany has been hit severely by the lockdown measures both at home and abroad."

The data from Germany comes despite the country having a far less severe epidemic than its western European peers. Germany has recorded 185,750 confirmed cases of the coronavirus (a number similar to its peers; France has reported just over 191,000 cases, for example) but it has recorded a far lower death toll. Germany has reported 8,685 deaths, according to data collated by Johns Hopkins University, while France, by contrast, has recorded 29,158 deaths.

Germany has attributed its lower death toll to an early lockdown, tracking and tracing early cases of the virus and a recently modernized healthcare system.

The government began to lift lockdown measures tentatively on April 20, allowing smaller retailers and car dealerships to reopen. Car production was allowed to restart at the end of April and further restrictions were lifted in early May, including the reopening of schools. Further lockdown measures are to be lifted soon, with Germany relaxing a travel ban to other European countries on June 15.

While economists like Brzeski expect the lifting of lockdown measures to lead to "a strong rebound in economic activity," he that added: "the period after the imminent rebound does not look too promising," and predicted further challenges for Germany's crucial car industry.

"Contrary to the financial crisis and the important role of Asian countries in the swift recovery of German industry back then, there is currently no savior in sight to quickly boost external demand. This means that German industry, which had been battered by a series of adverse events like the diesel crisis and problems with admission norms in the automotive industry, low water levels in main rivers and trade tensions, as well as structural challenges, will have a hard time quickly returning as the economy's poster child."

Industry-watchers also forecast more short-term declines in industrial production, according to the closely-watched Ifo institute, which surveys business leaders on their outlook and expectations for the economy.

"German industry expects the decline in production to continue over the coming three months, albeit at a slower rate," Klaus Wohlrabe, economist and head of surveys at the Ifo Institute, said Monday.

Ifo's index of production expectations rose to negative 20.4 points in May, having stood at negative 51.0 points in April. Although this is the biggest month-on-month increase in the index since German reunification, Ifo noted, "all it means is that the nosedive is now flattening out," Klaus Wohlrabe said in a note.