German industrial production shows tentative signs of bottoming out
German industrial output rose 1.8% month-on-month in October, after a downwardly revised 1.1% drop in September. The October uptick was mainly driven by activity in construction and electronics. On a yearly basis, production increased by 0.8%. Notably, this marks the first time since early 2024 that German industrial production has risen for two consecutive months—a rare occurrence these days.
Signs of Stabilization, But Not a Breakthrough
Germany’s factory sector has often looked vulnerable, facing a mix of cyclical headwinds and structural pressures. External factors like US tariffs and a stronger euro, combined with higher energy costs, geopolitical tensions, and shifts in China’s role within the global economy, have created a challenging environment for German industry.
While the path forward remains complex and progress won’t be instantaneous, there are cautiously encouraging indicators suggesting the downturn may be leveling off. Industrial orders have risen for two months in a row, inventories have edged downward, and capacity utilization is beginning to recover. These signals are still weak and fragile, but they offer a glimpse of potential improvement.
It’s worth noting that the 2026 budget was only recently approved by the German parliament, and any fiscal stimulus will unfold gradually. Moreover, the promised reduction in energy prices for industry could bolster cyclical activity over time. That said, a cyclical rebound in Germany should not be mistaken for a structural upturn; the fundamentals remain constrained, and any gains are likely to be partial and uneven.
