German industrial production, the combined output of the country's factories, mines and utilities, rose 0.9% in May from the month before, according to figures published this morning by Destatis, the federal statistics office. That was well ahead of the 0.2% economists had pencilled in and the strongest monthly gain this year, following a run of weak months that had begun with declines in January and March. After revision, April's increase was trimmed to 0.2%.
The rebound was led by the car makers. Production in the automotive industry, still Germany's largest manufacturing sector, jumped 3.6% on the month. It came a day after factory orders, new demand for German-made goods and the closest thing the sector has to a leading indicator, rose 1.9% in May against expectations of 1.2% and a 3.2% drop the month before. Much of that order book was flattered by an 85% surge in "other vehicle construction", the category that captures aircraft, ships and trains, where a handful of large contracts can move the whole number.
Two firmer readings in two days is a marked change of tone from the spring, when cooling German factories were weighing on the euro. For the European Central Bank, which raised its deposit rate, the rate it pays banks on reserves and its main policy lever, to 2.25% in June, a quarter-point rise and its first increase since 2023, the data cuts both ways. Cooler June inflation had raised hopes the hike would prove a one-off; evidence that industry is turning a corner hands the hawks on the Governing Council a reason to keep the door open. After a year of false starts, German factories finally have a little wind at their backs.
What it means for GBP/EUR
The pound came into the release trading around 1.1700 against the euro, within touching distance of its strongest level of 2026. Better German data is, at the margin, a reason for the euro to firm, since it trims the case for the ECB to ease and points to steadier growth ahead. That leaves sterling's recent run looking a little more stretched: the near-term bias stays with the pound while UK sentiment holds up, but a further run of solid eurozone numbers would start to narrow the gap. For a business paying euro suppliers, or a buyer completing on a property in France or Spain, a level this close to the year's best is the kind of moment a forward contract exists to capture, fixing today's rate for a payment due later so the budget holds whichever way the next print lands.
