Production in German industry slumped significantly in March as a result of the war in Ukraine. According to preliminary figures from the Federal Statistical Office, total production fell by 3.9% compared to the previous month. The last time there was a sharper decline was at the beginning of the coronavirus crisis in April 2020, when production fell by 18.1%, the Wiesbaden-based authority explained on Friday (May 6). Supply bottlenecks and material shortages worsened as a result of the war. For example, a lack of cable harnesses from Ukraine caused massive problems for the automotive industry in March.

Ukraine war weighs on mechanical engineering

After five consecutive increases, industrial production experienced a severe setback, primarily due to the Russian war in Ukraine, the Federal Ministry of Economics announced. According to the report, production in the automotive industry fell by 14.0% in March. The equally important mechanical engineering sector recorded a drop of 5.3%. For the industry, which was already burdened by supply bottlenecks for important intermediate goods last year, the war and the associated high raw material prices represented a further damper, the ministry explained.

According to the Ifo Institute for Economic Research, a good 80% of industrial companies surveyed in March complained of bottlenecks and problems in the procurement of primary products and raw materials. Commerzbank chief economist Jörg Krämer expects industrial production to continue its downward trend in the coming months. "On the one hand, China's zero-corona policy is causing supplies to German industry to falter. On the other hand, Putin's war of aggression is unsettling consumers and companies here in Germany."

Further burdens expected

According to the Association of German Chambers of Industry and Commerce (DIHK), industry will continue to face major challenges in the coming months. "Supply chain problems in particular will continue to weigh on the manufacturing sector," said DIHK economic expert Jupp Zenzen.

The manufacture of capital goods fell by 6.6% in March. Energy production was 11.4% lower than in the previous month, following a significant increase in February. Construction activity, on the other hand, rose slightly by 1.1%.

Industrial production is one of a series of weak economic data published this week. Exports and incoming orders also fell in March compared to the previous month. According to Thomas Gitzel, Chief Economist at VP Bank, the spring and summer months are likely to remain difficult for German industry.