MNI Data Preview: German Industry Still Mired In Recession

     LONDON (MNI) - Still Searching For A Bottom: German industrial production

increased by a meagre 0.3% m/m in May. And June's data will probably not show a

turn for the better. Indeed, markets are looking for a 0.5% monthly decline in

production. This would leave average Q2 output down by 1.6% compared to Q1 (when

it increased by 0.4% q/q).

     Markets Historically Over-Optimistic In June: Markets tend to overestimate

production growth in June. Indeed, over the past nine years, actual m/m IP

outturns have come in weaker than projected by consensus on seven occasions.

This suggests the potential for a downside surprise in tomorrow's data.

     Forward-Looking Indicators Bode Poorly For H2 2019...: Despite a 2.5% m/m

uptick in June, German factory orders fell by 1.0% q/q over Q2 as a whole,

following an even heftier 4.2% contraction in Q1. Moreover, survey evidence

suggests that this downward trend is on course to extend into the second half of

the year.

     ...As Global Backdrop Remains Challenging & Uncertain: The flaring US-China

trade war, slower global growth, the lingering threat of US auto import tariffs,

and the growing risk of a hard Brexit continue to stoke uncertainty, dampen

sentiment and weigh on demand. As such, companies are increasingly putting

investment and expansion plans on hold. As a key global supplier of machine

tools and other investment goods, this is hitting German industry especially

hard.

     Economy Close To Standstill: While Germany may have grown marginally in Q2

(GDP data due 14 Aug), there are growing concerns that the economy could come to

a standstill - or even register a mild technical recession - in the second half

of the year. For an ECB which already has its finger on the trigger, this will

increase the urgency for much-anticipated policy stimulus in September.

--MNI London Bureau; +44 0203 865 3814; email: irene.prihoda@marketnews.com

[TOPICS: M$E$$$,M$G$$$,M$X$$$]