German manufacturing sector: Forecast for 2015 output lowered to 1%, only moderate growth also in 2016

In Q2 2015, real manufacturing output in Germany was up by a seasonally adjusted 0.2% on the Q1 level. This was the third quarterly increase in a row. New manufacturing orders surpassed the level of the preceding period by no less than 3.1% (real) in Q2. However, the reading had been relatively weak in Q1 at minus 1.5% qoq. Moreover, the increase in Q2 was partly due to extensive big-ticket orders (in aircraft manufacturing). "Core orders" (excluding big-ticket orders) as well as production registered a noticeable downturn in June in seasonally adjusted terms vis-à-vis the preceding month. So, all in all, there is (still) no visible sign of a stable up-trend in Germany's manufacturing sector.

The ifo sentiment indicators suggest, moreover, that manufacturers are somewhat uncertain about their business prospects. True, expectations about the future development of business activity, employment, output and export activity in the German manufacturing sector are, without exception, still in positive territory at present. However, all the indicators have been trending downward for several months. To be fair, it must be noted that ever since the end of 2010 German manufacturing companies have nearly all reported that their expectations of future business were (very much) worse than their assessment of the current situation. Various negative news reports in business and politics obviously weighed on company sentiment during this period. However, actual business activity appeared to be less heavily impacted than perhaps feared. Nonetheless: the down-trend in the sentiment indicators is a clear warning signal for the economy. In line with this development, capacity utilisation in the manufacturing sector was lower at the beginning of the third quarter for the second time in a row, albeit only slightly.

Domestic industrial output will continue to climb on a quarterly basis also in the remaining months of 2015. However, the growth will probably be slower than anticipated to date. 

"We are revising our forecast for 2015 output to the downside - from 1.5% so far to 1% (both in real terms). The moderate up-trend is roughly set to continue in 2016; at least we see little risk of a recession in the manufacturing sector at present," notes Deutsche Bank.

On balance, manufacturing output could increase by 1% again that year. This means its growth rate would continue to fall short of the long-term average and that of the economy as a whole. Manufacturing's share in Germany's total gross value-added would decline accordingly.