Germany’s manufacturing sector is set to suffer an even more severe contraction than the United Kingdom, according to the latest business trends survey.

Manufacturing levels in the UK had their largest-ever single-quarter fall at the end of 2008, shrinking by 4.6 per cent, but BDO Stoy Hayward’s latest Eurozone Business Trends report reveals that Germany’s prospects have collapsed.

The Manufacturing Output Index highlighted the Germans’ pain, with the index falling from 89.9 in October to 79.6 in January.  This is the first time that any Business Trends Index has fallen below 80 and equates to an expected contraction of two per cent over the next quarter. This is lower than the UK, France and Italy.

The Manufacturing Output Index for the UK fell from 91.2 in October to 83.0 in January, indicating that the sector will shrink by 1.5 per cent over the next quarter.

Kim Rayment, business restructuring partner at BDO Stoy Hayward in Birmingham, said: “What began as a white-collar recession has now hit the rest of the economy, with manufacturing by far the worst-affected sector. The picture for German manufacturers is particularly bleak, but the UK sector isn’t far behind.

“The intensity of the shock administered to manufacturing industry means that even strong and globally competitive businesses could go under. 

It has become apparent that helping just the banking sector is not enough. Therefore, it is essential that policy-makers develop packages to aid manufacturing industry and thereby help restore that consumer and business confidence.

“The packages for the UK and German automotive industries outlined by their governments are a start but we need to see more.”

The potential fallout from the manufacturing crisis is reflected in the BDO Employment index, which indicates that unemployment in the UK and Euro-zone will rise by 1.75million over the next quarter. The Eurozone Employment Index fell from 98.5 in October to 92.6 in January. This is consistent with the unemployment rate rising to 8.7 per cent over the next quarter, which would put an additional 1.5 million Eurozone residents out of work.

In the UK, the index fell from 98.8 in January to 94.2 in October, consistent with an unemployment rate of 6.8 per cent over the next three months, equating to an additional 250,000 people out of work.