German industrial production experienced a steeper decline than originally
anticipated in the month of June, according to data released on Monday.
This data underscores the challenges confronting the manufacturing sector
amid a downturn in the largest economy of Europe. In June, industrial
production saw a decrease of 1.5% when compared to May’s figures. This
decline was primarily driven by a significant 3.5% contraction in Germany’s
automotive industry. This scenario raises the concern of a potential
retraction within the manufacturing powerhouse later in the year, with the
looming possibility of slipping back into a recessionary state. The
observed dip in industrial output is poised to emerge as one of the
contributing factors responsible for triggering a renewed contraction in
Germany’s Gross Domestic Product (GDP) during the second half of 2023.
Furthermore, the construction sector, which experienced a notable
contraction of 2.8% in output, also exerted an adverse influence on the
overall industrial production, as indicated by the country’s official
statistics office on Monday. The German manufacturing sector has
encountered challenging times thus far in the year, grappling with
diminishing orders, sluggish output, and elevated price levels. This is
clearly exemplified by the final Purchasing Managers’ Index (PMI) for
manufacturing provided by HCOB, which has experienced a decline for the
sixth consecutive month, culminating in July.
The recent emergence from a recession during the April-to-June period,
marked by a stagnant Gross Domestic Product (GDP) in comparison to the
previous quarter, seems to be accompanied by tenuous prospects. The current
provisional data suggests that the modest improvement in the economic
outlook may not be sustainable over time. The German automotive sector,
constituting roughly 5% of the national economy, continues to grapple with
the aftermath of the pandemic-induced setback and persistent disruptions in
supply chains.
Despite a noteworthy increase in car production, with approximately 2.2
million units manufactured in the first half of the year as reported by the
German Automotive Industry Association, the output remains 10% lower than
the corresponding period in 2019. A return to the pre-pandemic production
levels appears to be an endeavour requiring additional time.
In other segments within Germany’s industrial sector, encompassing energy
production among others, exhibit a more optimistic outlook. New
manufacturing orders demonstrated a substantial surge of 7% in June, in
comparison to the previous month, according to preliminary data released
last Friday. However, these figures were influenced by large-scale orders,
thereby potentially distorting the overall interpretation.
Source: TradingView
Turning attention to the stock market, the German benchmark index extended
losses from last week, but overall price action remained trapped within the
boundaries of the 15,456 – 16,528 trading range. Despite the large bearish
divergence, which shows that the rally is running out of steam, as long as
the index remains within its current range the up trend from the October
2022 low remains intact.
Given the recent loss of momentum the price action is likely to remain
choppy in the near-term. Ultimately, a subsequent breakout from the current
trading range would determine the direction of the next leg.
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