Industry and autos show signs of rebound in Germany

Volkswagen announced it is resuming production in Germany, though normal practices appear far off.
By : Bloomberg
| Updated on: 24 Apr 2020, 21:54 PM
File Photo used for representational purpose only. (REUTERS)
File Photo used for representational purpose only. (REUTERS)
File Photo used for representational purpose only. (REUTERS)
File Photo used for representational purpose only.

The past week may have marked the bottom of the energy demand slump in Germany, with manufacturing giants from Volkswagen AG to BASF SE signaling a rebound may be close at hand.

Industry consumes 46% of Germany’s electricity and 38% of its natural gas, according to BDEW utilities lobby group. That means any uptick in the economy may register there first along with evidence of more traffic on the streets.

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(Also Read: Skoda to resume production at Czech plants from April 27 post Covid-19 shutdown)

Europe’s biggest economy started restrictions on activity due to contain the coronavirus starting March 20, later than most other countries in the region. Investors looking for signs of activity picking up may want to focus on the electricity market.

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“The industrial sector is definitely where we will see the first signs of energy demand coming back," said Oliver Rakau, chief German economist at Oxford Economics. “But it will be limited. Several firms are starting to produce again, but it is unlikely that they will go quickly to normal production levels."

Chancellor Angela Merkel moved forward with plans to slowly start returning Germany to normal, allowing some smaller shops to reopen this week and children to begin returning to school in early May. Electricity demand appears to have bottomed out this week, rising last days for the first time since the lockdown started.

Volkswagen announced it is resuming production in Germany, though normal practices appear far off. The car maker also distributed guidelines in 19 languages to more than 40,000 suppliers around the world on how workers should protect themselves from the virus.

The automotive sector employs more than 800,000 people and feeds work to thousands of suppliers for materials from chemicals to steel, glass, copper and rubber.

As restrictions ease, Rakau expects an initial bouncing in industrial production in April and May -- and consequently in energy consumption. He’s not sure whether that will be maintained -- it depends on how the virus spreads as lockdowns ease.

People and Vehicles

Data showing the mobility of the workforce also show some signs of higher activity and may confirm the trend seen in energy.

Fuel deliveries shrank in Germany after people were told to stay home. Sales at filling stations across Germany have suffered a “massive slump" -- many by more than 80%, according to Herbert Rabl, a spokesman for Tankstellen-Interessenverband, an industry association.

The volume of traffic in the roads dropped after the nation closed its land borders with five neighboring countries and tightened controls for ships and at airports. Many companies asked staff to work from home, slashing the number of people commuting and using intercity trains.

Fuel sellers are looking to heavy industry for signs of an upturn.

“The production sector has to recover so that the fuel sector can increase again," Rabl said. “And the economically strong metropolises are set to start up faster than the medium or small towns."

There are some early signs that people may be leaving home. The daily number of pedestrians in downtown areas in Germany, in comparison to forecasts, has also increased significantly, according to IfW Kiel.

“Demand for air, rail and passenger transport will not normalize, or only very slowly, for the time being," said Frank Peter, vice-director at Agora Energiewende.

Longer term, the outlook for Germany depends on how the rest of the world’s economy weathers the virus.

“The situation of big export markets are pretty bad, such as in the U.S.," said Gabriel Felbermayr, president at Institut für Weltwirtschaft Kiel, a leading economic institute in Germany. “That weakness will depress the manufacturing sector also in Germany."

Even in Germany, few are brave enough to suggest a quick bounce-back if only because restrictions will remain in place for many more months.

“Travel will remain prohibited for the time being and even large industrial companies will only slowly restart production," Peters said. “We have to assume that electricity demand and sales of gasoline and diesel will remain below the previous year’s level well into the year."

First Published Date: 24 Apr 2020, 21:52 PM IST
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