Germany July industrial production -1.1% vs +0.1% m/m expectedPrior +0.2%; revised to 0.0%
The breakdownThat’s a big miss on estimates as the weak July print was driven heavily by a sharp albeit partly temporary auto-sector slump. That being said, the broader industrial picture was also soft on the month.
Of note, the auto sector posted a decline of 9.2% m/m – partly due to a multi-week production pause.
But looking elsewhere, the production of capital goods also fell by 3.4% and consumer goods by 2.2% on the month. To make matters worse, the only lift on the month came from energy production – which rose by 4.7% mainly from stronger wind and solar generation.
If excluding energy and construction, German industrial production for July recorded a drop of 2.2% on the month. However, it’s not all bad as the three-month trend was still slightly positive at +0.4%. So, the July report may indicate weaker data, but not necessarily evidence of a fresh industrial collapse.
What does this data measure?It measures real output from Germany’s factories, energy sector, construction and mining. It is a key gauge of whether Germany’s industrial economy is expanding or contracting.
Why does it matter to markets?Germany is the euro area’s largest economy and is heavily exposed to manufacturing, so industrial production gives markets a direct read on growth momentum.
How does it fit the current German economy?Germany’s manufacturing backdrop has recently improved, with August PMI showing the strongest rise in production since January 2022 and July factory orders rising 2.5% m/m. Thus, the key question is whether industrial production confirms that recovery. A strong reading would be encouraging, while weakness would suggest the recent improvement in surveys and orders has not yet translated into actual output.
What is the potential market impact?The impact is usually minimal to moderate unless the surprise is large. A strong print gives the ECB more room to stay hawkish; a weak print implies the opposite.
Current market relevance?Minimal. The ECB is currently more focused on elevated euro area inflation and its expected September rate hike than on any single German production release.
This article was written by Justin Low at investinglive.com.