The German economy’s start to the second quarter proved very disappointing. German exports and industrial production recorded their sharpest declines since August 2015, exposing the continued vulnerability of Europe’s largest economy to political uncertainties related to global trade as well as Brexit. Exports fell -3.7% while industrial output dropped -1.9% compared to the previous month, driven by a marked decline in the production of investment and intermediate goods. New orders in the manufacturing sector provided a welcome ray of light with a seasonally adjusted gain of +0.3% in April compared to the previous month, while the value for the month of March was slightly corrected upwards (+0.8%). Excluding bulk orders, the increase was even significantly stronger (+2.1%). However, the most recent order figures are hardly a reason to sound the all-clear: The tentative trend reversal in foreign demand observed in early 2019 could quickly vanish into thin air again in view of the recent intensification in the U.S.-China trade dispute, and there are initial signs that the weakness in industry is also increasingly weighing on German domestic demand. Expect German economic momentum to remain subdued for the coming quarters with risks tilted to the downside.
