Real industrial production in Germany is on the cusp of stabilization! According to the latest figures, there was a 1.3% month-on-month rise in July. This new total includes a 1.5% increase from the same month last year. It points toward a possible cyclical turnaround in the nation’s manufacturing base. Though this is indeed a positive development, production is still more than 10% below its pre-pandemic peak. This gap reveals the continuing scars that still plague the industry even over six years from the start of the pandemic.
The information paints a clear picture that though certain parts of the economy are booming, many other sectors are still faltering in their recovery. Particularly given that the most energy-intensive wage and salary sectors in the industry are still about 5% below their January 2024 levels. Germany’s exports fell by 0.6% in July month-on-month. This steep drop off underscores the difficulty that German manufacturers with orders continue to face on the global stage.
Export Dynamics and Trade Balance
Even with this drop in exports, the United States remains Germany’s most significant export destination during the first half of the year. It has represented 10% of Germany’s total exports. This further statistic makes the importance to German manufacturers of the U.S. market abundantly clear. Yet Germany’s exports to China have been slumping. Since then, they’ve plummeted from 8% in 2020 to roughly 5% today. This decrease is leading to increasing alarm over Germany’s increasing reliance on their biggest trading partner in Asia.
Exports to our friends in Central and Eastern European countries such as Hungary, Czech Republic, and Poland have reached record highs. Unsurprisingly, they now make up 12% of all exports. This change indicates a meaningful diversifying of trade relationships that may help buffer losses from declining exports to China. Germany’s trade surplus has narrowed to €14.7 billion from €14.9 billion in June. This shift underscores the economic hurdles the German economy must overcome in an increasingly dynamic global playing field.
Domestic Challenges and Capacity Utilization
Germany’s domestic demand remains persistently weak, exacerbating a deeply unbalanced economy. The new normal German industry’s capacity utilization remains very low, comparable to the depths of the financial crisis. In fact, it’s been stuck at these levels for more than a year at this point. Yet this stagnation raises fundamental questions about the long-term sustainability of these efforts underway to recover. It further poses existential questions about how effective government strategy, on all levels, should be.
The German government’s plans to support industries rooted in the 20th century may not be adequate for transitioning into a more modern economic framework suited for the 21st century. American tariffs would be devastating to the German Mittelstand. This sector is not only Germany’s bedrock economic structure but its wellspring of economic innovation, as well.
Outlook for Recovery
Although some indicators point to the possibility of a cyclical rebound in German industry, recent let-downs remind us not to get ahead of ourselves. The problems described by every industry suggest that the recovery is going to take time and a focused pivot away from habit. Key indicators tell a different story, one in which if we don’t tackle domestic demand and boost our businesses’ competitiveness in global markets, that growth momentum can slip away.