German industry has taken a permanent hit, estimated 7% shortfall is half cyclical and half structural

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Mittel-kaput? Germany’s industry won’t be able to fully shake off the impact from its downturn of the past years, according to research by Bloomberg Economics.

While expectations are high for a rebound from the hit of the pandemic and the recent energy crisis, Thursday’s analysis now suggests that half of an estimated 7% shortfall in industrial activity will persist.

“A cyclical industrial recovery is to be expected as monetary policy eases and demand returns,” said Martin Ademmer, a BE economist in Frankfurt. “But there’ll be no return to pre-2019 norms — the sector appears to have taken a permanent hit.”

BE’s modeling shows that the annual growth rate of potential gross value added in the manufacturing sector has fallen to 0.5% last year from 1.5% in 2019. This slowdown is estimated to result in a 3.5% shortfall in productive capacity compared with a simple extrapolation of the 2015-2019 trend.

The Bundesbank projects a 0.3% expansion this year, saying that economic rebound “is continuing.” But the manufacturing sector’s recovery remains sluggish and recent data revealed slumps in industrial production and factory orders, failing to alleviate concerns over its resurgence.

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