German industry suffers again: production down 4% year-on-year in February

German industrial production disappointed in February and dampened weak expectations of recovery, which had been ignited by recent indicators such as the Ifo business confidence index and the Pmi purchasing managers' index, both of which improved in March.

A drop was expected by analysts after the rebound in January (2% on a monthly basis), but not as deep: the decline is 1.3% compared to January and 4% year-on-year, according to data from Destatis. Industrial production (excluding construction and energy) is still 13 points lower than pre-Covid and 18 points below its November 2017 peak.

The long downturn illustrates the structural change taking place in the German economic system, which is actually in need of rebalancing, according to several analysts. German industry is still worth around 24% of GDP, much more than in other advanced countries. Moreover, Germany has already seen large industries, such as textiles or mining, disappear or shrink in the past.

The phenomenon is also beginning to appear in the employment data. In the 12 months to January 2025, industry lost 120,000 jobs (to almost 6.7 million), according to the Federal Employment Agency, and a similar decline is expected in 2025. At the same time, the shortage of skilled profiles in the most advanced sectors of manufacturing represents a bottleneck for the industry, which cannot be solved by immigration from countries such as Syria or Afghanistan.

On this dynamic are now two factors that can have a very significant impact. On the one hand, there are Donald Trump's tariffs, which may cost Germany a few decimals of growth already in the first year and which threaten above all industrial sectors that are already in crisis, starting with the automotive industry.