German industrial production unexpectedly drops

Industrial production in Germany unexpectedly declined in May, registering its worst contraction in two and a half years, according to data by the Federal Statistical Office.

Production fell 2.5% month-on-month, following a revised 0.1% increase in April, originally estimated at -0.1%, Destatis reported on Friday.

That was only the second monthly decline of the 2024 and the biggest since December 2022.

The data showed downward trends in "most economic sectors of industry" in May, with production in the automotive industry in particular pulling back 5.2% after 4.5% growth the previous month.

Meanwhile, the manufacture of machinery and equipment was down 5.9%, capital goods production fell 4.0%, intermediate goods production declined 2.7% and consumer goods production slipped 0.2%. Outside industry, energy production was up 2.6%, while production in construction dropped by 3.3%.

Paolo Grignani, senior economist at Oxford Economics, said it's likely that temporary factors were affecting May's result, but they will revert in June, which "make[s] the picture look worse than it is".

"Today's print dims hopes of a recovery in industry, but doesn't confute our view of a gradual catch-up in the second half of the year. It also supports the view that German Q2 GDP growth will struggle to match Q1's pace," Grignani said.