Germany’s factory output falls to lowest since 2020 pandemic

FRANKFURT, Germany – German industrial production slumped in June to its lowest level since the Covid-19 pandemic in 2020, data showed on Aug 7, underlining the fragility of Europe’s top economy even before US President Donald Trump’s new tariffs kicked in.

Factory output fell 1.9 per cent month on month, federal statistics agency Destatis said, steeper than a drop of 0.5 per cent forecast by analysts polled by financial data firm FactSet.

There were particularly heavy falls in the machinery and pharmaceutical sectors, helping to drag overall output down to levels last seen in May 2020 during the Covid-19 pandemic.

Destatis also made a major revision to May industrial production data, saying the indicator fell 0.1 per cent. It had previously reported a healthy rise of 1.2 per cent.

ING bank analyst Carsten Brzeski said the dire data could prompt a downward revision to an already poor initial estimate showing that the economy shrank slightly in the second quarter.

“This is bad news,” he said. “At face value, industry remains stuck in a very long bottoming out.”

Fixing the euro zone’s traditional export powerhouse has been a key priority for Germany’s new conservative Chancellor Friedrich Merz, with the economy battered in recent years by high energy costs and fierce Chinese competition.

Plans to spend hundreds of billions of euros on infrastructure upgrades and rearmament – combined with a series of brighter data releases since the start of the year – had raised hopes that the worst might be over for Europe’s export champion.

German business morale rose to its highest level in July after seven straight increases, while think-tanks, including the respected DIW institute, have revised growth forecasts up for 2025 and 2026.

But hard data on business activity has not been as rosy, raising fears that the improved mood was down to unfounded optimism.

Experts say better data early in the year was the temporary effect of US “front-loading” as American customers rushed to get orders in before Mr Trump’s tariffs took effect.

“Optimism still seems to be based on a big portion of wishful thinking and is not at all matched by current data,” Mr Brzeski said.

“For now, what looked like a cyclical rebound in the making has only been US front-loading.”

took effect on Aug 7, up from 10 per cent in effect since April, stiffening the tariff faced by Germany’s exporters even while leaving many of them mired in uncertainty.

Export data released on Aug 7 showed that German exports in June to the US – the country’s biggest trading partner – fell 2.1 per cent, even as they rose 0.8 per cent worldwide.

Data released on Aug 6 showed that industrial orders – closely watched as an indicator of future business activity – fell 1 per cent month on month in June, after dropping 0.8 per cent in May.

The US is also carrying out investigations into sectors, including pharmaceuticals and semiconductor equipment, heightening worries about worse to come.

“The tariffs are a big burden for German companies,” Ms Helena Melnikov, the head of the German chambers of commerce, told AFP.

“Don’t forget that tariffs were usually between 0 per cent and about 2 per cent at the most beforehand,” she said.

“It could even come out worse for a variety of sectors because negotiations are ongoing,” she added. “It is a real setback and makes it harder to do business in Germany.” AFP

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