German Industrial Production Slumps, Pointing to Imminent Recession

German industrial production took a sharp downturn in September, particularly in the automotive sector, indicating a looming recession for the powerful eurozone economy.

According to data released by German statistics office Destatis on Tuesday, production fell by 1.4% compared to the previous month, surpassing economists' expectations of a 0.4% decline, as reported by The Wall Street Journal.

For the entire third quarter, production was down 2.1% compared to the previous three-month period.

Carsten Brzeski, global head of macro research at Dutch bank ING, described the situation as "Germany's macro horror show." He believes that with no positive indicators in sight, Europe's largest economy could face a technical recession by the end of the year.

The decrease in September's production was largely attributed to lower output from the automotive industry, which witnessed a 5% drop in vehicle production compared to the previous month. Other major industries such as electrical equipment and pharmaceuticals also saw slight declines.

While German factories experienced a slight increase in orders in September, this growth is mainly due to large-scale orders and backlogs that are unlikely to provide significant support going forward. According to Andrew Kenningham, chief Europe economist at consultants Capital Economics, the winter months look bleak for the sector due to declining demand, high energy prices, and rising borrowing costs.

According to estimates by Capital Economics, the German economy is expected to contract in the fourth quarter, similar to its performance in the third quarter. A swift recovery in the first half of next year is unlikely.