German industrial production disappoints

German industrial production (including energy and construction) fell by 1.3% in February compared to January. The decline was larger than expected (consensus: -0.8%). The drop was mainly due to construction output (-3.2%), although this was also a counter movement to the strong increase of 2.5% in January.

All in all, industrial production continues to move sideways at a low level (chart). The same applies to incoming orders, so that a rapid recovery of industrial production is not to be expected. The slight recovery of the Purchasing Managers' Index and the Ifo Business Climate Index offers some hope. But after the announcement of the massive US tariff increases last Wednesday, there is a risk of a setback here.

The US has imposed a tariff of at least 20% on around 80% of all German goods exports to the US. In anticipation of a sharp increase in tariffs, we had already lowered our German economic growth forecast for 2025 from 0.2% to 0.0% a good three weeks ago. We had assumed that the damage would be reduced by negotiations between the EU and the Trump administration. If, contrary to expectations, negotiations fail to produce any results at all, there is a risk of a recession this year.

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