German Industrial Production Rebounds, Export Challenges Loom

On Wednesday, August 7, the German economy was under the spotlight after June’s surge in factory orders.

German Industrial Production Jumps 1.4%

German industrial production increased by 1.4% in June after sliding by 3.1% in May.

According to Destatis, key contributions included:

• Automotive industry: Production was up 7.5% in June (May: -9.9%).
• Electrical equipment manufacturing: Rose by 5.2%.
• Food Industry: Production fell by 5.3%.
• Industrial production (excl. energy and construction): Increased by 1.5% in June.

German Exports Struggle Amid Global Demand Decline

Despite upbeat production numbers, export figures painted a gloomier picture, signaling a waning global demand environment.

According to Destatis,

• Exports to the EU fell by 3.4% in June, while imports increased by 1.0%.
• Euro area exports declined by 3.2% in June, while imports from the Euro area slipped by 0.3%.
• Exports to non-EU countries slid by 3.5% in June, with imports declining by 0.4%.
• The US accounted for most exports despite falling by 7.7% in June.
• Most imports came from China, which fell by 4.9% in June.

German Economy and the ECB Rate Path

The recent German factory orders and industrial production numbers suggested an improving demand environment. However, trade terms highlighted a weakening global demand environment, supporting a more dovish ECB rate path.

The June uptick in factory orders and industrial production could be temporary. Germany’s HCOB Manufacturing PMI fell from 43.5 in June to 43.2 in July, signaling weaker demand. Output and new orders continued to fall.

Hamburg Commercial Bank Chief Economist Dr. Cyrus de la Rubia remarked on the German manufacturing sector PMI survey, stating,

“Due to the sharp drop in production and new orders, we’re revising our growth forecast down. With manufacturing being so crucial to Germany’s economy (accounting for 22.6% of gross value added), we are now expecting the overall economy to grow by just 0.2% this year, down from our previous forecast of 0.5%.”

EUR/USD Reaction to German Industrial Production

Before Germany’s economic data, the EUR/USD climbed to a Wednesday high of $1.09315 before falling to a low of $1.09067.

However, in response to the stats, the EUR/USD fell from $1.09101 to a low of $1.09052.

On Wednesday, August 7, the EUR/USD was down 0.18% to $1.09103.