Companies ramp up production in response to U.S. tariffs; Germany's industrial output unexpectedly rises in May
Germany's industrial output unexpectedly grew by 1.2% in May, as companies ramped up production to seize export opportunities before potential tariff increases in the United States. Despite good short-term economic performance, the outlook is not optimistic, with expectations of stagnation or contraction in the economy by 2025. The president of the German central bank warned that trade tensions could escalate, impacting GDP. Companies have prepared for complex bilateral relations, and future manufacturing growth will depend on changes in trade and geopolitical environments
According to the Zhitong Finance APP, Germany's industrial output unexpectedly increased in May, indicating that companies are ramping up production to seize export opportunities before the United States may significantly raise tariffs. Data released on Monday showed that Germany's seasonally adjusted industrial output rose by 1.2% month-on-month in May, better than economists' expectations of a 0.2% month-on-month decline, and an improvement from the previous month's decline of 1.4%. Output in the automotive, pharmaceutical, and energy sectors all saw increases.
Although companies completed export orders before the new trade rules were implemented, leading to a strong start for the German economy in 2025, the outlook for the remainder of this year is not optimistic. After two consecutive years of economic contraction, Germany's economy is expected to stagnate at best in 2025. If trade tensions escalate, the German central bank predicts that economic contraction may also occur in 2025 and 2026.
Joachim Nagel, President of the German central bank, stated on Monday: "The situation is still evolving, and trade tensions could either escalate or ease at any moment." He added that if the situation worsens, Germany's GDP loss could expand to 1.5 percentage points by 2027.
The deadline for the United States and Germany to reach an agreement on tariffs is July 9, but companies are already preparing for a more complex bilateral relationship and the associated costs. Some companies plan to relocate production across the Atlantic, while automotive manufacturers like Mercedes-Benz Group have already engaged in informal talks with U.S. officials, somewhat undermining the official negotiations led by the EU.
The German Ministry of Economy stated in a statement: "Future progress remains highly uncertain. Whether the manufacturing sector can maintain its growth momentum in the summer will largely depend on the evolution of trade and geopolitical conditions." Further highlighting the instability facing the German economy, data released last Friday showed that factory orders fell by 1.4% month-on-month in May, far exceeding expectations and marking the first decline in four months.
Joachim Nagel stated on Monday: "The German economy faces significant headwinds in the short term." However, he also added: "Looking ahead, there are still reasons to maintain a cautiously optimistic outlook." Joachim Nagel noted that considering the unexpected 0.4% economic growth at the beginning of this year, "it is possible to achieve slight growth for the entire year," but even so, this would mean Germany would experience three consecutive years of weak growth
