Seasonally adjusted industrial production rose by only +0.2% m/m in September. On average in Q3, production was thus -0.9% below the level in Q2. This disappointing development can be explained to a considerable extent by a specific factor. The automotive sector faced major problems with the certification of vehicles according to a new emission test procedure, which led to a very sharp drop in auto production. There is no doubt that the prospects for the German economy have deteriorated in recent months. This can be seen both in sentiment indicators and in "hard" economic data such as production, incoming orders and retail sales. In our view the main reasons for this are the continuing uncertainty over the outcome of the trade dispute with the U.S. and sluggish progress in the Brexit negotiations. The further development in these problem fields will play a decisive role in determining whether the German economy will noticeably regain momentum or not following a likely stagnation in Q3.
