Off the Charts: Industrial Production Sags, and Even Germany Is Affected

Figures reported this week showed that industrial production in the euro zone fell 2.5 percent in September from the previous month, the largest monthly decline since January 2009, during the worst part of the credit crisis. Production in Germany was off 2.1 percent.

Although the figures are seasonally adjusted, they can be volatile. But the longer-term trend was poor even before the September figures came in.

The accompanying charts show year-to-year changes in industrial production, using three-month moving averages to smooth out some volatility, among advanced economies as a group, in the euro zone and five major countries.

The Dutch government compiles industrial production figures from around the world. In August, the total for advanced economies was lower than it had been a year earlier, something that had not happened since 2009, although the three-month average, as shown in the chart, remained a little higher.

The September figures for some countries will not be out until the end of this month, but it seems likely they will show a drop as well.

“Germany has slowed because weak global demand, particularly for the major machinery that Germany exports, is creating lower demand for Germany’s exports,” wrote Greg Jensen of Bridgewater Associates, a hedge fund and advisory firm. He said German companies were accumulating large inventories and their profits were suffering.

There are exceptions to the world pattern. Chinese industrial production continues to rise at a rate of more than 9 percent a year. While that is down from last year, it remains good. On Friday, the Federal Reserve reported that industrial production in the United States slipped in October by 0.4 percent, the second decline in the last three months, although the Fed said it would have been close to unchanged but for the effects of Hurricane Sandy. The annual growth rate is down to less than 3 percent.

But the declines have spread to some developing countries. Brazil’s production is running about 3 percent below that of a year earlier, and Indian production is basically flat compared with a year earlier.

It is not clear how much of the weakness in industrial production represents a real weakening of demand and how much reflects inventory issues. During the credit crisis, production fell much more rapidly than final demand, as companies found it hard to get financing and worried that their customers would be unable to pay for what was being shipped. Much of the revival in 2010 reflected pent-up demand, and some of the current slowing may simply show that depleted inventories have been replenished.

But the declines also provide an indication of continuing problems, particularly in some of the European countries most in need of a growing economy.

Greece’s industrial production was never large to begin with, but it is now lower than at any time since the figures began to be compiled in 1995, and is down about a third from its peak, set back in 2000.

Italian production appeared to recover in line with that of other countries in 2010, but has since weakened appreciably. For much of this year, it has been down more than 6 percent from the previous year. Spain’s production has fallen almost as rapidly.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

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