In March, production in German industry recorded the sharpest slump since the Corona crisis compared to the previous month. According to the chief economist at Commerzbank, industrial production will continue to trend downwards. On the other hand, prices will rise.

After almost all corona measures were scaled back, the Ukraine war is a burden on the German economy. Above all, production in German industry slumped significantly in March. According to preliminary information from the Federal Statistical Office, total production fell by 3.9 percent compared to the previous month.

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The Wiesbaden authority explained on Friday that there was a sharper decline at the beginning of the Corona crisis in April 2020, when it was 18.1 percent. Accordingly, production in March 2022 was 3.5 percent lower than in the previous year.

Delivery bottlenecks and material shortages worsened as a result of the war. For example, the lack of wiring harnesses from Ukraine caused the auto industry massive problems in March. “As a result of the ongoing restrictions caused by the Corona crisis and the war in Ukraine, many companies are still having problems processing their orders due to disrupted supply chains,” the Wiesbaden authority said.
After the last five increases in a row, industrial production has experienced a severe setback, mainly due to the Russian war in Ukraine, the Federal Ministry of Economics explained.

As an export-oriented country, Germany is disproportionately affected by the trade sanctions against Russia. In addition, important goods in the production process have become scarce due to the war in Ukraine. In the auto industry, production fell by 14.0 percent in March. Mechanical engineering, which is also important, recorded a minus of 5.3 percent. According to the Ministry, the war and the associated high raw material prices are a further setback for the industry, which was already burdened last year by delivery bottlenecks for important intermediate goods.

According to the Ifo Institute for Economic Research, a good 80 percent of the industrial companies surveyed complained about bottlenecks and problems with the procurement of preliminary products and raw materials in March.

Commerzbank chief economist Jörg Krämer expects industrial production to trend downwards in the coming months. “On the one hand, China’s zero-corona policy is stalling supplies for German industry. On the other hand, Putin’s war of aggression is unsettling consumers and companies in this country.”

According to the assessment of the Association of German Chambers of Industry and Commerce (DIHK), industry is also facing major challenges in the coming months. “Supply chain problems in particular will still burden the manufacturing industry,” said DIHK economic expert Jupp Zenzen.

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Manufacturing of capital goods fell by 6.6 percent in March. Energy production was 11.4 percent lower than in the previous month after rising significantly in February. In contrast, construction activities increased slightly by 1.1 percent.

Industrial production joins a series of weak economic data released this week. Exports and incoming orders also fell in March compared to the previous month. According to Thomas Gitzel, chief economist at VP Bank, the spring and summer months are likely to remain difficult for German industry.

The price expectations of the companies surveyed by the Ifo Institute, on the other hand, are rising sharply. A large majority of companies are planning short-term price increases, especially in wholesale with 79.3 points, followed by retail with 75.4 points and industry with 73.1 points. The price expectations for construction with 64.2 points and for service providers with 51.5 points are rising less strongly, but also significantly.
“Inflation in Germany should therefore also be over seven percent in the coming months,” said Ifo economic chief Timo Wollmershäuser.

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