Weak May Releases Raise Further Recovery Into Question

German market-relevant datapoints for the month of May indicating industrial economic activity released thus far unanimously pointed towards a stall of the gradual recovery arising before, and raise the question of where we go from here.

• PMI business expectations indicate that the worst of the deceleration in German activity is over (the June manufacturing PMI actually saw the fourth straight increase in business expectations).
• IFO business expectations meanwhile declined in June after four consecutive increases, to 89.0 (vs 90.3 prior), putting a reversal into question.
• The details of the weak factory orders May release as well as recently deteriorating exports suggest that the trajectory of German industrial activity in the coming months might be largely dependant on the external sector. Domestic demand meanwhile should see previous real wage increases pass through at least to some extent, but is unlikely to provide a major impulse.
• Looking at sentiment in the external sector, IFO export expectations developed broadly sideways around the neutral threshold recently (-1.0p in June vs +0.2p prior) - suggesting that the May declines are not set to intensify, but also unlikely to be reversed imminently.
• As a reminder, the weak May hard data referred to above were factory orders at -1.6% M/M (lowest rate since January; vs +0.5% cons, -0.6% prior; 'core' rate even weaker at -2.2% M/M), industrial production at -2.5% M/M (lowest rate since December 2022, vs +0.1% cons; +0.1% prior), and imports/exports (at -6.6% / -3.6% M/M respectively, vs consensus of -1.0% / -2.8%).

MNI, Bloomberg