German Manufacturing Contracts 25 Months, Hits Eurozone Global Trade

Germany's industrial sector continues to face significant challenges, with industrial production falling to its lowest level since May 2020 and remaining more than 10% below pre-pandemic levels. Recent data indicate a deepening crisis, as German industrial output declined by 1.9% in June, exceeding expectations, while exports rose slightly but shipments to the United States fell for the third consecutive month. The earlier temporary boost from companies front-loading shipments ahead of U.S. tariffs has faded, contributing to a broader contraction in global trade, particularly in manufacturing, as reflected in the global Purchasing Managers' Index (PMI), which shows a broad-based downturn in export orders. Germany's prolonged manufacturing slump is destabilizing the Eurozone's trade dynamics, with the bloc's largest economy experiencing two years of contraction, stagnant exports, and a sharp decline in its current account surplus. This downturn is exacerbated by U.S. tariffs under President Trump's administration and has led to a weaker euro, increased inflationary pressures, and disruptions to global supply chains dependent on German industrial demand and intermediate goods exports. Overall, despite some cyclical optimism earlier in 2025, German manufacturing remains fragile, with subdued business sentiment and risks of renewed contraction impacting both the Eurozone and global trade flows.