German Exports To US Fall To Lowest Level Since 2021

Germany has reported an unexpected decline in exports in July, with goods shipped to the US falling for the fourth month as trade uncertainty hit Europe's biggest economy.

Exports decreased month-on-month by 0.6% to €130.2 billion, the German Federal Statistical Office (Destatis) said on Monday. That compared to a forecasted increase of 2.5%, according to data provided by Trading Economics.

Although the US remained the largest market for German goods, exports to the US dropped a monthly 7.9% in July to €11.1 billion. That was the lowest level since 2021.

Ahead of the latest export data, the Ifo Institute had already lowered its growth forecast for Germany to 0.2% this year and by 1.3% in 2026. Compared to its summer forecast, Ifo revised its forecast slightly downward by 0.1 and 0.2 percentage points, respectively.

The European Union (EU)-US trade deal, initiated on August 1, locked in a maximum 15% tariff on most EU exports to the US. However, German companies have struggled to maintain competitiveness, even after the EU and the US avoided a full-blown trade war.

"The US tariffs are still having a noticeable negative impact on the German economy," Tim Wollmershäuser, Head of Forecasts at Ifo, said. "The agreement in the tariff dispute between the US and the EU is not expected to have any direct impact on the forecast, as the effective tariffs are largely the same as in the summer."

The tariffs may also have a negative impact on the US. The world’s largest economy could slow 0.7 percentage points, primarily due to inflation and lower consumer spending, the Düsseldorf-based IMK institute warned in July.

US fast-food chains, such as McDonald’s Corp. (NYSE:MCD) and Domino's Pizza Inc. (NASDAQ:DPZ), could be impacted if the costs of ingredients have suddenly skyrocketed, according to Sid Malladi, CEO and co-founder of Nuvo, a business-to-business technology platform.

Investors' Sentiment in Germany Plummets

With Germany unable to shake off two years of contraction, confidence in the world's third-largest economy plummeted in August. Weak global demand and high energy costs drove the mood lower.

The ZEW Indicator of Economic Sentiment in Germany decreased in August 2025 to 34.7 points, or 18.0 points below July. The assessment of the current economic situation hit minus 68.6 points, 9.1 points below the previous month, according to ZEW.

"Financial market experts are disappointed by the announced EU–US trade deal," ZEW President Professor Achim Wambach said on August 12. "The ZEW indicator experienced a substantial decline, also due to the poor performance of the German economy in the second quarter of 2025."

The Mannheim, Germany-based institute pointed to a worsening outlook for the German chemical and pharmaceutical industries. The mechanical engineering and metal sectors, as well as the automotive industry, are also severely affected, it said.

Zew will release its next sentiment check on September 16.

Industrial Production Rises, Weak by German Standards

German industrial production rose 1.3% in July, compared with June, beating the forecast of 1.1%, Destatis reported on Monday. A 9.5% increase in machinery and equipment manufacturing supported production.

However, Franziska Palmas, senior Europe economist at Capital Economics, wrote on Monday the "output was still weak by past standards."

"The data suggest that the sector has been resilient to tariffs after all," Palmas said. "We continue to think production will trend down over the medium term despite efforts by Merz's government to preserve Germany's industrial strength."

Chancellor Friedrich Merz's government has enshrined a €500 billion infrastructure and climate special investment fund in its constitution. It also amended its fiscal rules to increase defense spending.

September data from the sentix economic index dashed "hopes of an economic recovery" in Germany, Frankfurt-based sentix said on September 7. The overall index lost 9.4 points and fell to -22.1 points, it said.

Bond Markets Highlight Economic Concerns

Concerning the eurozone, the overall value of the sentix index slipped by 5.5 points to -9.2, sentix said.

"In Germany in particular, the downward trend is intensifying once again," sentix said. "Both the current situation and future expectations are deteriorating noticeably. This means that economic concerns are returning in full force."

The bond market has reacted to the deterioration in confidence in the European economy. The spread between the French 10-year bond and the German 10-year bond has rallied, exceeding 80 basis points.

French Industrial Output Falls

In France, industrial production declined by 1.1% month-over-month in July, the National Institute of Statistics and Economic Studies said on Tuesday.

The drop was smaller than the expected 1.8% decline, but reversed a revised 3.8% surge in June.

"The decline in industrial production in July masks a fairly solid underlying trend at the start of the third quarter," Think ING said on Tuesday.

"Against a backdrop of weak consumption, growing political uncertainty and pressure on public finances, the economic outlook for France remains fragile. Political uncertainty is adding to the gloom."

The French government collapsed on Monday after Prime Minister François Bayrou failed to overcome a confidence vote. The political development has cast France into political turmoil as the nation struggles to contain its skyrocketing debt.

President Emmanuel Macron appointed Defence Minister Sébastien Lecornu as the country's new prime minister. The 39-year-old will try to get the country’s fractious political parties to agree on a budget.

Italian, Spanish Output Rises Amid Sluggish Outlook

Italy’s industrial production rose by 0.4% month-on-month in July 2025, Istat data showed on Wednesday. Production beat market expectations of a 0.1% drop.

Meanwhile, Spain's industrial production advanced 2.5% year-on-year in July, the National Statistics Institute said on Wednesday. That marked five straight months of expansion and the fastest pace since October 2024.

However, economic growth in the eurozone remains weak. The European Commission forecasts 0.9% GDP growth for the eurozone in 2025 and 1.4% for 2026. The European Central Bank, which kept its interest rates unchanged at its meeting today, forecasts 0.9% for 2025.

"Economic growth has been fairly resilient to tariffs so far," Palmas and her colleague, Jack Allen-Reynolds, Deputy Chief Eurozone Economist, wrote on Tuesday. "But growth will be sluggish over the rest of this year and next as low confidence and slowing income growth weigh on consumption, while eurozone exporters struggle with deteriorating competitiveness."

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