Germany’s Industrial Sector Has Been Notoriously Disappointing Lately

Germany’s Industrial Sector Has Been Notoriously Disappointing Lately
Paul Allison, CFA

about 2 months ago2 mins

What’s going on here?

Germany’s previously prized industrial sector continued its streak of infamy, laying low for the sixth month in a row.

What does this mean?

The industrial powerhouse has a reputation for being reliable. Usually, that means churning out enough produce to buoy up the country’s economy and, more often than not, the whole of Europe’s too. But more recently, Germany has been reliably disappointing. The latest data showed that the industrial sector’s output shrunk by 0.7% in November versus the month before, letting down economists who had hoped for a 0.3% recovery. So with the sector still making around 10% less of its wares than before the pandemic, some economists believe that Europe’s biggest economy might’ve fallen into a technical recession at the end of the year.

German industrial production

Why should I care?

The bigger picture: The worse the data, the hastier the help.

Inflation seems to be losing its muscle, but central banks will want a few more months of consistent data before they consider bringing interest rates any lower. At the end of the day, a hasty move could wipe out much of the progress made. But central banks don’t want to hammer economies too hard, either. So as long as inflation stays on the retreat, they may lean on concerning stats – like that German data – to justify economy-cushioning interest rate cuts as soon as they confidently can.

Zooming out: America’s pulled ahead.

Investors often act on their macroeconomic predictions by trading currencies, so the foreign exchange market can be revealing. The euro and US dollar have been stuck in a chase for the last year, with the frontrunner depending on whether investors expect the Federal Reserve or European Central Bank (ECB) to cut rates first. But lately, the dollar has been building strength as investors anticipate the ECB reaching for the scissors first. Mind you, any disheartening stateside data could turn those odds on their head.

USD to EUR
Source: Google Finance
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