German industry shows surprising resilience in June
At a Glance
The desk sees a more resilient German industry, hinting at a cautious but notable recovery in June. Despite higher energy prices and geopolitical tensions in the Middle East, industrial production increased 0.2% month-on-month, driven primarily by automotive output, as highlighted in the recent commentary from **ING**. While this uptick is encouraging, concerns remain about whether it signals a sustainable recovery given that output is still approximately 10% below pre-pandemic levels. Current dynamics in energy prices and geopolitical conflicts will substantially influence the future trajectory of Germany's economic outlook.
Key Takeaways
- 01German industrial production rose 0.2% MoM in June.
- 02Exports grew by 0.9% MoM, bolstering the growth narrative.
- 03Uncertainty remains regarding the sustainability of this recovery.
- 04Cyclical improvements shouldn't obscure long-term structural challenges.
Full Analysis
What the desk is arguing
The desk frames the recent performance of the German industrial sector as a complex interplay of cyclical rebound against longer-term structural challenges. Per the full note, June's industrial production increment signals a shift towards a modest economic recovery, although it is essential to discern that this improvement arises from previously depressed levels rather than indicative of robust growth.
Notably, the automotive sector has played a pivotal role, reflecting a 0.2% increase in June, while exports followed suit with a 0.9% rise month-on-month. This development underscores the significance of net exports, which have emerged as vital contributors to growth in the second quarter of 2023. Such figures indicate that, even amidst broader global economic pressures, Germany's industrial fabric demonstrates some signs of resilience.
Where it sits in our coverage
Our consensus target for EUR/USD currently sits at 1.075, with a target range of 1.04 to 1.12. Notably, JPMorgan has set a target of 1.10 for March 2026, reflecting a bullish outlook on the euro, while BofA contrasts this with a more cautious target of 1.04 in the same tenor.
This perspective from the desk aligns closely with JPMorgan's optimistic stance, suggesting that the German industrial rebound could bolster the euro; however, it falls within the varying expectations among firms, with BofA representing a more pessimistic outlook on the euro.
How other firms see it
Firms like JPMorgan and Goldman Sachs align with a more positive outlook on EUR/USD, emphasizing the potential positive impact of improving industrial metrics in Germany on the euro's strength. In contrast, BofA and HSBC exhibit a more skeptical view, highlighting concerns regarding the underlying structural issues facing the German economy.
Key indicators to monitor include the interplay of German manufacturing performance with EUR/USD movements, as improvements in industrial output could lead to an appreciating euro against the backdrop of ongoing economic recovery efforts.
Market Implications
Watch for EUR/USD movements around the 1.075 target level, as signs of continued industrial resilience could lead to upward pressure on the euro, especially in light of the short-term impacts from energy prices. Positioning may also reflect trader sentiment leading up to potential external shocks.
From the original
Older quick take Quick take Published 06:49 Germany German industry shows surprising resilience in June Despite higher energy prices and the war in the Middle East, German industry continued its modest cyclical rebound, with an improvement in June. However, whether this rebound c
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