German industrial production falls sequentially in May, economic growth likely to shrink in Q2

German industrial production dropped in the month of May. On a sequential basis, industrial production dropped 1.9 percent. After the slight glimmer of hope for orders, today’s figures for industrial production were a cold shower. Consensus expectations were for a fall of 0.5 percent. Construction output rose a bit, while production in manufacturing dropped 2.5 percent. The figures for foreign trade were also very poor. Exports dropped 3.7 percent compared with the previous month.

Some might speculate that the clear minus in the April figures is because of special effects such as the late timing of Easter holidays. Nevertheless, the considerably lower production in manufacturing is consistent with the subdued development of incoming orders in recent months.

“The trend we calculate for industrial production in April on the basis of these figures is even slightly lower than production (chart). As a result, there is no reason to expect a significant counter-movement in May, and there is even the risk of a further decline”, said Commerzbank in a research report.

The figures published today affirm the concerns that the German economy might contract somewhat in the second quarter. According to Commerzbank, the economy is expected to see a weak growth of 0.4 percent in 2019, which is well below consensus. Nevertheless, a pronounced recession is unlikely. The ECB’s expansive monetary policy continues to underpin domestic demand, and foreign demand should pick up again slightly later in the second half of 2019.

“However, in view of the threat of a further escalation in global trade conflicts, we have lowered our forecast for 2020 from 1.8 percent to 1.3 percent. Adjusted for the different number of working days, the increase will probably only amount to 1.0 percent”, added Commerzbank.

At 12:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at 34.5186 while the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -57.6162 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex