Industrial production stalls in April

Demand for capital goods only increased slightly in the first quarter 2021, going up 1.8 percent compared to the fourth quarter 2020. Year on year, orders were up by a notable 13 percent. Orders from domestic companies increased by 11.6 percent compared to last year and were thus slightly less dynamic than orders from abroad, which rose by 13.8 percent.

Consumer goods producers only received a marginal 0.3 percent more orders in the first quarter 2021 than in the previous quarter. Year on year, orders were only up by 1.7 percent. While demand from within Germany dropped by 3.23 percent, orders from abroad were up by five percent compared to the same period last year.

The recent steep rise in incoming orders has filled order books substantially. According to figures from the ifo Institute, orders in hand in manufacturing reached 3.5 production months at the start of the second quarter 2021, thus outperforming the record so far from the first half of 2018. The backlog of orders for producers of intermediates increased by 0.6 production months to 3.1 production months. Capital goods producers have orders in hand amounting to 4.4 production months, while orders among consumer goods producers remain at two months.

According to figures from the Federal Statistical Office, the backlog of orders in manufacturing increased in March 2021 for the tenth month in a row. Domestic orders in hand increased by 1.9 percent, while orders in hand from abroad increased by 1.2 percent. This means that more than one year after the start of the pandemic, the backlog of orders is 8.3 percent higher following seasonal and calendar adjustment than before restrictions were introduced in February 2020.

Industrial production stalls in April

In April, production in manufacturing dipped 0.6 percent compared to the previous month following seasonal and calendar adjustment and according to preliminary figures from the Federal Statistical

Production, manufacturing

110

100

90

80

13.9

6.4

-0.2 -0.8

70

2017 2018 2019 2020 2021 Change over previous year, two-month-comparison, in percent (right axis) Volume index in manufacturing, two-month-average, seasonally adjusted (left axis) Change over previous quarter (q-o-q), in percent Source: Federal Statistical Office 20 15 10 5 0 -5 -10 -15 -20 -25 -30

Office. Compared to the same period last year, figures were up 34.2 percent on account of the base effect, as in April 2020 the economic slump induced by the pandemic bottomed out. Energy production increased by six percent in April 2021 compared to March and by 19.5 percent year on year. Construction activity was down 4.3 percent on the previous month. As only minor pandemicrelated restrictions were imposed on construction last year, production in the sector went up by just 1.3 percent year on year. Output in the production sector dropped by one percent in April 2021. Year on year, however, it was up by a hefty 26.4 percent. The figures for March were revised slightly, with the increase in turnover corrected from 2.5 percent to 2.2 percent.

In the first quarter 2021, industrial production was 0.2 percent lower than in the previous quarter following seasonal and calendar adjustment. Year on year, production was down 1.5 percent following a drop of three percent in the fourth quarter 2020. This means that in the year on year comparison, production has now been pointing down for eleven quarters.

Production development in the manufacturing industry

year on year change in percent 2019 2020 2020 2021 year Q3 Q4 Q1 original value calendar adjusted

compared to previous period in percent 2020 2021 Q3 Q4 Q1 Feb Mar Apr seasonally and calendar adjusted

Production -3.3 - 7.3 - 8.4 - 1.7 -1.9 10.6 6.0 -1.0 -1.9 2.2 - 1.0

Industry -4.2 - 9.6 -10.4 - 3.0 -1.5 13.9 6.4 -0.2 -2.0 0.7 - 0.6

Intermediate goods -3.6 - 6.1 - 7.5 1.1 2.4 10.1 7.8 2.2 -0.9 0.7 - 0.2

Capital goods -4.5 -14.6 -15.3 - 6.0 -3.7 21.6 7.7 -2.2 -3.6 0.1 - 0.1

Consumer goods -4.7 - 3.7 - 3.6 - 3.4 -4.4 5.4 0.5 -0.9 0.2 2.7 - 3.3

Energy -7.2 - 7.2 - 2.9 - 2.7 -2.1 8.0 3.0 -1.6 -2.8 0.5 6.0

Construction industry 3.3 3.3 - 0.5 5.0 -4.7 - 1.5 5.3 -4.3 -1.4 9.8 - 4.3

Construction industry proper 5.9 5.9 2.8 2.9 -3.0 - 0.4 0.4 -0.3 -2.3 16.6 -11.6

Finishing industry 1.0 0.0 - 3.7 6.6 -6.3 - 2.7 10.1 -7.8 -0.4 3.5 3.1

Sources: Federal Statistical Office, own calculations

In April, industrial production dipped slightly but the general trend is still upward. The order books for industry are full. Soft indicators including the business climate and the purchasing managers’ index signalise an increase in production in the coming months.

As production took a major slide in March last year, a rebound was clearly on the cards, but its scale remained to be seen. The increase in production, at more than five percent according to the latest figures, was substantial especially considering that the COVID restrictions were only imposed in the second half of March last year. The quarterly figures nonetheless reveal that despite a good level of