Germany's April industrial production rose 0.4% month-on-month, in line with expectations but with slowing momentum

Overview

This Goldman Sachs economics research report comments on Germany's April industrial production data. Germany's industrial production rose +0.4% mom, in line with Goldman Sachs and market expectations. The report argues that spot industrial activity remained resilient in April, especially with strength in construction, but industrial production excluding construction and energy was flat, the three-month trend remained negative, and worsening orders and forward-looking surveys suggest manufacturing momentum may slow in the second quarter.

Core views

The core view is that the April headline data were not weak, but the quality was uneven. Construction made a clear contribution and some manufacturing subsectors improved; at the same time, capital goods and autos were weak, the three-month trend was still declining, and forward-looking indicators do not support excessive optimism about second-quarter momentum.

Analysis framework

The report cross-validates German manufacturing conditions using indicators including total industrial production, industrial production excluding construction and energy, construction, three-month-over-three-month changes, sectoral breadth, orders, forward-looking surveys, and truck mileage, and combines these with Goldman Sachs' statistical model to assess the common signal for manufacturing in May.

Methodology notes

• Macro High-Frequency TrackingMonth-on-Month Industrial Production and Three-Month Trend

  Observe both monthly month-on-month changes and 3m/3m changes to distinguish one-month volatility from trend momentum.

  The +0.4% mom increase in April shows an improvement in short-term activity, but the 3m/3m reading of -0.6% indicates that the smoothed trend remains weak.

• Structural BreakdownSector and Subsectors Breadth

  Use the weighted share of subsectors with rising output to judge whether the improvement is broad-based.

  In April, 64% of subsectors rose month-on-month on a weighted basis, but only 40% on a 3m/3m basis, indicating that the improvement was more evident in the single month while trend breadth remained limited.

• Forward Momentum AssessmentOrders, Survey Indicators, and Statistical Models

  Use orders, forward-looking surveys, and manufacturing-related high-frequency indicators to extract a common signal.

  The report notes that orders fell sharply in April and forward-looking surveys deteriorated to levels unseen since the war; although truck mileage improved in May, Goldman Sachs' statistical model still points to slower momentum in May.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• German Industrial Production/Manufacturing Cycle

  The macroeconomic variable directly tracked by this report.

  Strengths

  April total industrial production met expectations, construction was strong, and some subsectors such as pharmaceuticals, chemicals, and other transport equipment posted solid growth.

  Weaknesses

  Core industry was flat, the three-month trend declined, and autos and capital-goods-related sectors were weak.

  Comparison

  The aggregate performance was in line with Goldman Sachs and the market, but trend indicators were weaker than the single-month month-on-month reading.

  Risks

  Falling orders, deteriorating forward-looking surveys, and energy shocks may weigh on subsequent output.

• Eurozone GDP Tracking

  German industrial production is an important input into tracking short-term Eurozone growth.

  Strengths

  Improved industry and sales in April provide some support for activity at the start of the second quarter.

  Weaknesses

  Goldman Sachs' statistical model points to slowing manufacturing momentum in May, making it difficult to extrapolate directly into strong GDP growth.

  Comparison

  The report says GDP tracking estimates will be adjusted in subsequent Eurozone data updates.

  Risks

  If the common manufacturing signal continues to weaken, GDP tracking may be revised down.

• European Industry-Related Equities and Credit Themes

  The macro industrial cycle affects cyclical expectations for assets related to industry, autos, chemicals, and capital goods.

  Strengths

  Output improved in some subsectors, and chemicals and pharmaceuticals posted strong data.

  Weaknesses

  Auto output fell sharply, and capital goods production continued to weaken.

  Comparison

  The report is not an individual stock rating report and does not provide specific security recommendations.

  Risks

  Supply chain disruptions, energy prices, and slowing demand may pressure the performance of related assets.

Key data

• Germany Industrial Production in April+0.4% momIn line with Goldman Sachs' forecast of +0.4% and market consensus of +0.4%.
• March Industrial Production RevisionRevised up by 0.6 percentage pointsThe prior reading was revised from -0.7% to -0.1%.
• Industrial Production Excluding Construction and Energy0.0% momThe prior reading was -0.5%, revised up from the previous -0.9%.
• Construction Industrial Production+2.4% momConstruction was an important source of the improvement in total industrial production in April.
• Total Industrial Production 3m/3m-0.6%The three-month trend from February to April remained negative.
• Industry Excluding Construction and Energy 3m/3m-1.4%Showing that core industrial momentum was weaker than the aggregate.
• Construction 3m/3m+0.8%The construction trend was better than overall industry.
• Other Transport Equipment+3.2% momAmong the leading subsectors in month-on-month growth.
• Pharmaceuticals+3.0% momPerformed strongly in April.
• Chemicals+2.1% mom；3m/3m +2.5%The report believes this may be related to front-loaded production ahead of supply chain disruptions.
• Automobiles-4.7% mom；3m/3m -1.7%Despite three consecutive months of growth previously, auto output fell sharply in April.
• May Truck Mileage Index+1.6% momThis indicator is usually correlated with manufacturing activity.
• Subsector Growth Breadth64% mom；40% 3m/3mThe single-month improvement was broad, but the trend measure remained weak.

Impact & implications

For investment and macro assessment, the April data support the view that German industry has not sharply deteriorated in the near term, but they are insufficient to prove that the manufacturing cycle has entered a sustained recovery. If orders and survey indicators continue to weaken, second-quarter GDP tracking and Europe industrial-related assets may still face downward revision pressure.

Risks

• Orders fell sharply in April, which may signal weaker subsequent output.
• Energy shocks and supply chain disruptions related to the Iran war may continue to affect manufacturing.
• Deteriorating forward-looking survey indicators suggest weak momentum in the second quarter.
• The improvement in chemical output may partly reflect front-loaded production, creating a risk of reversal later.
• Auto output fell sharply month-on-month in April, which may weigh on the industrial chain.
• Industrial production data are subject to revision risk, and a single-month reading cannot fully represent the trend.

What to watch

• May manufacturing data and the common signal from Goldman Sachs' statistical model.
• German industrial orders, industrial sales, and forward-looking survey indicators.
• Whether the truck mileage index can sustain the +1.6% mom improvement seen in May.
• Whether front-loaded production in the chemicals sector reverses.
• Whether auto output can rebound from April's -4.7% mom.
• GDP tracking estimates in Goldman Sachs' subsequent Eurozone data updates.