Germany's industrial production and exports saw a decline in April, following a recent uptick in the first quarter of 2024. This downturn suggests that the previous increase was likely connected to a surge in activity prior to the introduction of tariffs.

Specifically, the manufacturing sector experienced a monthly decrease of 1.4% and a year-over-year drop of 1.8%.

In March, overall production had risen by 2.3% compared to the previous month, while a year-over-year comparison indicated a slight decline of 0.7%.

April's export figures also fell short of expectations, with a decrease of 1.7% month-on-month and a 2.1% decline compared to April 2023. Conversely, imports rose by 3.9% from March to April, with an annual increase of 3.8%.

Karsten Brzeski, the global head of macroeconomic analysis at ING, noted that the industrial production data reflects an anticipated reversal from earlier pre-pulled orders during the first quarter.

He indicated that the structural weakness in the industry is not yet overcome.

However, he also pointed to growing indications that the German industrial cycle may be gradually improving, as industrial orders have increased and stock levels have begun to decrease.

Despite some encouraging signals within the data, Brzeski also pointed out that threats of tariffs from the U.S. administration pose a significant risk to the German economy, which is already grappling with structural challenges.

In recent years, Germany has frequently been referred to as the "sick man of Europe," given its economic growth has been constrained by an aging workforce, excessive bureaucracy, high energy costs, and slow productivity growth.

Nonetheless, Germany's Gross Domestic Product (GDP) did see a rise of 0.4% in the first quarter of this year, surpassing expectations.

This growth was largely spurred by companies attempting to preemptively counteract proposed tariffs.

Economists anticipate that the European Central Bank's recent decision to lower interest rates, alongside increased defense spending, could support further economic growth in Germany.

The German government has passed a constitutional amendment to its debt brake rule, meaning expenditures on defense above 1% of GDP will no longer count toward debt limits.

Additionally, the government has established an off-budget fund of €500 billion for further infrastructure investments.

In two weeks, the government is expected to unveil budget plans for 2025 and 2026, which are anticipated to include more details on how and when it plans to utilize the €500 billion from the new infrastructure investment fund.

While it is still early and comprehensive structural reforms have not yet been introduced, initial actions by the new government appear promising and may initiate a positive momentum.