German industrial production drops 4.3%, raising recession fears, ING warns

Investing.com - German industrial production fell 4.3% in the most recent reporting period, marking the largest decline in three years, with automotive production plummeting 18.5%. This weakness is reflected in European value stocks, with the iShares MSCI Europe Value ETF trading near its 52-week low and showing a -40.8% return over the past six months, according to InvestingPro data.

The sharp drop signals potential structural problems in Europe’s largest economy, as production remains approximately 15% below pre-pandemic levels, according to analysis from ING. Energy-intensive sectors continue to struggle, with production still around 4% below 2024 levels.

ING noted that capacity utilization in German industry has remained at lows comparable to the financial crisis for over a year, describing this as "another painful sign of this structural weakness." The brief industrial upswing observed earlier in the year appears to have been primarily driven by frontloading of US products ahead of anticipated tariffs rather than sustainable growth.

Recent economic indicators paint a concerning picture, with industrial production declining, new orders falling for four consecutive months, and inventories reaching their highest level since February. ING warned these factors "do not bode well for the coming months."

The financial institution concluded that Germany faces "increased risk of yet another quarter of contraction and thus a technical recession," though it expressed hope that fiscal stimulus and defense spending might still provide some support to the industrial sector in coming months. Despite the challenging environment, European value stocks maintain a notable 4.53% dividend yield, as reported by InvestingPro, which offers comprehensive analysis of European market trends and valuations through its advanced screening tools.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.