Germany’s industrial production fell by 0.7% month on month in March, and the February fall was revised down. Output in the first quarter was more than 1% lower than in the final quarter of 2025.
The March fall was mainly driven by lower manufacturing output. Construction activity rose in March.
Germany Trade And Output Signals
Export growth slowed to 0.5% month on month in March, down from 4.7% in February. The trade surplus narrowed in March.
With quarterly industrial output down and the trade surplus reduced, there is a higher risk of a downward revision to the first estimate of first-quarter GDP growth. The war in the Middle East and rising energy prices were linked to the weaker data.
Industrial production would need at least 1% growth in the second quarter to return to positive territory. Energy prices continued to rise in April, alongside a greater risk of supply chain disruption.
The latest industrial numbers show Germany’s growth engine is sputtering badly, weighed down by the conflict in the Middle East. With production down over 1% from late 2025 levels and energy prices soaring, the outlook is grim. We should consider taking bearish positions on the German DAX index, as it has already fallen 4% since the start of April on these fears.
Market Implications For The Eurozone
This weakness in the German economy, which acts as the core of the Eurozone, puts significant pressure on the single currency. The EUR/USD exchange rate has already tested the 1.05 support level several times in the past month as investors flee to the perceived safety of the dollar. Therefore, we see opportunities in shorting the Euro, anticipating a further decline.
The continued surge in energy costs is the main driver, with European natural gas futures jumping over 30% in April to near €55 per megawatt-hour. We saw a similar situation back in 2022, where high energy prices caused a prolonged manufacturing downturn in Germany. History suggests this slump could be deeper and longer than many currently expect.
This combination of slowing growth and rising energy-driven inflation creates significant market uncertainty. The European Central Bank is caught between fighting inflation and supporting a faltering economy. Buying volatility options, like those on the VSTOXX index which is up 15% in the last thirty days, could be a prudent strategy to hedge against unpredictable market swings.
