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Germany: Industrial Setback In June But Q2 Growth On Track

Aug. 07, 2018 10:55 AM ETEWG, DAX, GF, DXGE, HEWG, DBGR, FGM, QDEU, FLGR1 Comment


  • Broad-based decline.
  • GDP could still outperform eurozone.

By Carsten Brzeski, Chief Economist ING Germany

The June drop in industrial production is too small to affect a solid growth performance over the entire second quarter.

Broad-based Decline

German industrial production took a hit in June, dropping by 0.9% month-on-month from 2.4% MoM in May. On the year, industrial production was still up by 2.5%. The drop in industrial activity was broad-based. After three strong months, activity in the construction sector also weakened, declining by 3.2% MoM. At the same time, exports held up relatively well despite the delayed impact from last year's euro strengthening and trade tensions, remaining flat in June after a 1.8% MoM increase in May. As imports increased by 1.2% MoM, the seasonally-adjusted trade surplus narrowed to €19.3 billion, from €20.4 billion in May.

After yesterday's disappointing new orders data, speculation about an imminent downswing in the German economy has gained new momentum. Intuitively, weak June data can be associated with trade tensions. However, in our view, it's not so straightforward. Analysis of the German economy requires more nuance. Here is our take on the state of the economy:

GDP Could Still Outperform Eurozone

  1. Despite this week's disappointments, comparing economic activity data with first quarter data still points to solid growth in 2Q. Construction, industrial output, and consumption should all be growth drivers, not drags, in the second quarter. Therefore, next week's GDP data could easily outperform the eurozone's 0.3% growth rate.
  2. Looking at bilateral trade data, German exports have gone through a slight structural shift since the start of the year. While the share of German exports to the US is currently lower than in 2017, the share of other eurozone countries like the Netherlands, Italy, or Spain has actually increased.
  3. At least in the short run, weakening demand for German products, as illustrated by yesterday's

This article was written by

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