Weak German car industry hampers sectoral and global development of trading partners

A sharp downturn in production in the German car industry in the third quarter of 2018 had a negative impact on its main partners and is causing global and sectoral losses, according to a new report from European research network EconPol Europe. The research shows the effect on GDP is largest in the Czech Republic, Hungary and Slovakia. The report’s authors* expect the German car industry to stay in recession for the near future.

“The future perspectives for the German economy and those of its main trading partners don’t look that rosy, especially if we take a closer look at recent developments in car production,” says co-author Robert Lehmann, researcher at the ifo Institute.

Car production in Germany dropped by 9.4% in the third quarter of 2018, mainly due to problems with the implementation of the new Worldwide Harmonized Light-Duty Vehicles Test Procedure (WLTP). Other domestic industries and industries in economies that are highly linked to the German car industry via deeply integrated production chains were also impacted by the sharp drop.

The largest effect on gross domestic product (GDP) in the third quarter 2018 is for Germany at -0.75%. The Czech Republic faces a loss of 0.21%, Hungary of 0.20% and Slovakia of 0.18%. From a sectoral perspective the Swiss car industry suffered the most with a relative estimated loss in production of 1.5%. The Austrian car industry is facing losses of 1.4% followed by the Czech industry and Hungary with losses of 1.3%.

The EconPol researchers also analyzed the impact on domestic sectors. Sectors estimated to record the largest losses are fabricated metal products (0.9%), rubber and plastic products (0.9%), basic metals (0.8%), electrical equipment (0.5%) and wholesale and retail trade and motor vehicle repair (0.5%).

“Newly released figures by the Federal Statistical Office show that production in the German car industry in the second quarter 2019 again dropped by 2.4% compared to the first quarter 2019, after a decline of 4.2% in the first quarter,” says Robert Lehmann. “Given the results from this research, this drop is worrying for the economic situation of Germany and its trading partners.”

Read the full report: http://www.econpol.eu/publications/policy_brief_18

*Authors: João Leal (European Commission DG EC FIN; Ministry of Finance, Portugal), Robert Lehmann (ifo Institute; CESifo), Bertrand Marc (European Commission DG ECFIN, INSEE), Timo Wollmershäuser (ifo Institute, CESifo), Przemyslaw Wozniak (European Commission DG ECFIN)

For further information regarding the research, contact Dr Robert Lehmann on +49 (0) 89 / 9224-1652 or at lehmann@ifo.de

For information about EconPol Europe, contact Juliet Shaw at shaw@econpol.eu, or on 0034 686481877/0044 7837360470