German industrial production and manufacturing momentum Report Interpretation

Overview

This macro data update examines Germany’s July industrial-production release. Goldman Sachs characterizes the result as weak for early-Q3 manufacturing momentum, while identifying several forward indicators and a potential autos-production reversal that could improve activity in August or September.

Core views

German industrial production fell 1.1% month on month in July, materially below both consensus expectations of a 0.2% increase and Goldman Sachs’ below-consensus forecast of a 0.4% decline. June growth was revised down from 0.2% to 0.0%. The underlying industry measure excluding construction and energy dropped 2.2%, following an upward-revised 0.1% gain in June. By contrast, construction output rose 0.9% after a downward-revised 1.3% June fall, while energy production increased 4.7% from 1.7% and reached its highest level since 2022. On a less volatile three-month-on-three-month basis, total industrial production rose 0.4%, industry output rose 0.1%, construction rose 0.5%, and energy rose 4.0%. The weakness was broad but especially concentrated in autos. Motor-vehicle production fell 9.2%, which the report attributes likely to temporary plant shutdowns associated with retooling for electric vehicles. At the main-industry-group level, durable consumer-goods production increased and intermediate-goods production edged down, while non-durable consumer goods and capital goods declined. Capital-goods and non-durable-goods output each fell 3.4% in July. Energy-intensive sectors also weakened after stronger prior months: chemicals fell 2.9%, rubber and plastics declined 1.2%, and refining fell 5.7%. Goldman Sachs says this may reflect an unwinding of precautionary purchases following the energy-supply shock. Offsetting pockets of resilience included computers and electronics, up 2.7%, and electrical equipment, up 1.6%; both continued to expand on a three-month basis. Only 40% of subsectors, weighted by output, recorded monthly production gains, and only 36% increased on a three-month basis. The report concludes that the July spot data indicate subdued manufacturing momentum at the beginning of Q3. Industry output excluding construction and energy was 1.9% below its Q2 average in July, while real manufacturing revenue was 1.8% below its Q2 average. Goldman Sachs’ statistical model combining signals from several manufacturing data sources likewise indicates weak early-Q3 momentum. Construction and energy remain supports to activity, however. Looking ahead, the institution cites the continued rise in factory orders, positive manufacturing surveys, rising truck-toll mileage, and a partial reversal of the shutdown-driven autos decline as reasons to expect stronger activity in August. It cautions that low Rhine water levels could weigh on production and autos factory holidays could postpone the rebound into September.

Analysis framework

The report compares the monthly release with consensus, Goldman Sachs’ forecast, prior-month revisions, and three-month growth rates. It then decomposes production by construction, energy, broad goods categories and subsectors, and combines industrial data with manufacturing revenue and a statistical model using multiple manufacturing indicators to assess early-Q3 momentum and the near-term outlook.

Methodology notes

• Other

  Statistical model extracting a common signal from multiple manufacturing data sources

  Goldman Sachs uses the model to synthesize several manufacturing indicators and assess whether the weak July reading reflects broader momentum at the start of Q3.

Key data

• Total industrial production, July-1.1% month on monthVersus Goldman Sachs at -0.4%, consensus at +0.2%, and June revised to 0.0% from +0.2%.
• Industry production excluding construction and energy, July-2.2% month on monthVersus an upward-revised +0.1% in June.
• Motor-vehicle production, July-9.2% month on monthLikely related to temporary shutdowns for electric-vehicle retooling.
• Energy production, July+4.7% month on monthUp from +1.7% in June and at the highest level since 2022.
• Industry output versus Q2 average-1.9%July level of industrial production excluding construction and energy.
• Real manufacturing revenue versus Q2 average-1.8%July level cited as evidence of subdued early-Q3 momentum.

Impact & implications

Goldman Sachs interprets the release as evidence of weak manufacturing momentum at the beginning of Q3, despite support from construction and energy. The institution expects forward-looking activity indicators and an autos-production normalization to support a subsequent improvement, subject to production constraints.

Risks

• Low Rhine water levels could weigh on industrial production.
• Autos factory holidays could delay the expected production rebound into September.

What to watch

• The continued upward trend in factory orders.
• Manufacturing-survey readings and truck-toll mileage.
• Whether autos production partially rebounds after temporary plant shutdowns.
• Goldman Sachs’ updated Euro-area GDP tracking estimate.