Yahoo Finance German factories stutter back into life as lockdown eases
German factory output clocked up a record monthly increase in May in the latest sign the industrial powerhouse is over the worst of the coronavirus downturn, despite fears of a weak recovery on the Continent.
Production rebounded 7.8pc after falling a revised 17.5pc in April, but remained below pre-pandemic levels. Output in May was still 19pc lower than in February, the month before lockdown restrictions were enforced.
It came as the European Commission forecast that the eurozone economy will plunge deeper into recession this year and rebound less steeply next year than thought in May.
Carsten Brzeski, an economist at ING, said: “With some major trading partners still experiencing the full force of the virus and the possibility of a second virus (and lockdown) wave in many countries, the return of German industry to pre-crisis levels will not be easy.”
A slew of economic data suggests the worst is past across the European Union, although the recovery remains weak and could be derailed if a second wave of infection hits.
In Italy, retail sales climbed 25pc in May. Katharina Koenz of Oxford Economics said it was another sign that a turning point has been reached.
She forecast a further recovery in June as more shops reopen, but said this would be tempered in the longer term by consumer caution amid a weak employment outlook.
Forecasters at the European Commission are increasingly gloomy despite signs of growth. Having previously predicted a 7.7pc downturn this year and a 6.3pc rebound next year, they are now braced for a record 8.7pc contraction this year before a 6.1pc rise in 2021.
The more pessimistic revision was necessary because it is taking longer than planned to lift lockdown measures, the Commission said. It expects the economies of France, Italy and Spain to contract by more than 10pc each this year.
Germany was an exception, however. The Commission revised its May forecast of a 6.5pc downturn this year down to a 6.3pc drop.
Paolo Gentiloni, the EU economy commissioner, said: "The policy response across Europe has helped to cushion the blow for our citizens, yet this remains a story of increasing divergence, inequality and insecurity.”
Major risks include a new wave of Covid-19, more permanent economic damage such as lasting unemployment and a raft of business failures, and the failure to negotiate a Brexit trade deal.
