German factories plunge to pandemic low in 2020

German manufacturing slumps to pandemic‑low

Industrial production dropped 1.9 % month‑on‑month in June, the sharpest decline since the 2020 crisis, data from Destatis showed. The fall was driven mainly by machinery and pharmaceutical output, pulling overall output to the same level last seen in May 2020.

• June drop – 1.9 % decline vs. 0.5 % forecast.
• Sector impact – machinery and pharma hit hardest.
• May revision – 0.1 % decline after an earlier 1.2 % rise.

Bank analysts warn that the data could compel a lower revision to Germany’s already weak Q2 GDP estimate, keeping the economy on a steep downward path.

Political setbacks amid infrastructure plans

Chancellor Friedrich Merz prioritizes revitalizing Germany’s export powerhouse, stymied by soaring energy costs and intense Chinese competition. Large‑scale infrastructure upgrades and rearmament spending—combined with a series of bright data releases early in the year—had raised hopes that the worst might be over.

• Business morale hit a July high after seven consecutive rises.
• Growth forecasts for 2025‑26 revised upward by respected think tanks, including the DIW institute.
• Mixed activity data suggests optimism may be wishful, not data‑driven.

Analyst Carsten Brzeski cautions that early‑year optimism reflects U.S. “front‑loading” before Trump’s tariffs, not a genuine cyclical rebound. In contrast, Holger Schmieding notes signs of green shoots: rising investment and cautious consumer spending.

U.S. tariff escalation strains exports

On Thursday, U.S. tariffs on EU goods increased from 10 % to 15 %, tightening the burden on German exporters even as many remain uncertain about future trade conditions. Germany’s exports to the United States fell 2.1 % in June, while worldwide exports rose 0.8 %. Industrial orders slipped 1.0 % month‑on‑month.

• Sector scrutiny – U.S. investigations into pharmaceuticals and semiconductor equipment raise concerns for further impact.
• Chamber of Commerce stance – Helena Melnikov warns tariffs, previously at 0‑2 %, now represent a major drain on German businesses.
• Uncertainty – ongoing negotiations could worsen the situation for multiple sectors.

Despite the mounting trade hurdles, German policymakers remain focused on stabilizing the domestic economy amid global pressures.