Putin war pushes Germany to the brink of recession

GERMANY may already be sinking into recession after a shock slump in its factory activity following Russia’s invasion of Ukraine.

Industrial production in Europe’s biggest economy plunged by 3.9pc in March, a fall three times larger than economists had expected, leaving GDP 7.6pc below its pre-pandemic level.

It shows the severe impact the war is having on Germany’s vital manufacturing sector, even before the European Union tries to push through a ban on Russian energy imports.

Andrew Kenningham, from Capital Economics, said the figures showed the conflict was “hitting hard”.

“This is probably the start of a deep manufacturing downturn which we think will drag the entire German economy into recession,” he said.

Germany’s economic ministry said the country had been “disproportionately affected by trade sanctions against Russia” introduced as a result of the conflict. It said the war had “severely muted” industry. A severe drag came from the automotive sector, with output of vehicles down 14pc on the month to 63pc of its pre-pandemic level. The war dealt a further supply shock to carmakers, which faced shortages of wiring supplies from Ukraine on top of the prolonged shortage of semiconductors.

“In addition, the massive hikes in electricity and gas prices have pushed energy intensive chemical and metals firms to the brink and a fall in export demand, particularly from outside the eurozone, has not helped,” added Mr Kenningham. More timely business surveys suggest the slowdown worsened in April, with purchasing managers’ index data pointing to a continued slowdown. Confidence in the sector is the lowest since May 2020.

Manufacturers warned of worsening delays, and cost pressures nearing the record highs hit last year.

Orders declined for the first time since mid-2020 with firms blaming the war, economic sanctions levelled against Russia and the spillover from China’s lockdowns. Companies have tried to shield themselves against delays by stockpiling key goods.

Carsten Brzeski, from ING, said the data showed rising supply chain issues predicating a contraction during the second quarter.

He added: “The three pillars of Germany’s successful economic business model – exports, industry and energy – have become Germany’s Achilles’ heel.”

It came as a top German business group said the country must boost its use of coal and nuclear power to safeguard the industrial sector. The German Federation of Industrial Energy Consumers (VIK), which represents companies accounting for 90pc of production, said: “There is an urgent need to reduce natural gas consumption immediately, in order to preserve storage volumes and to achieve the goal of the highest possible filling levels in the autumn of 2022.”

It said the closure of brown coal plants over this year and next should be pushed back to 2024. About a third of gas used by Germany is consumed by its export-focused industrial producers.