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That's a clear setback against too much optimism – German industrial production dropped by 1.9 month-on-month in December, from a downwardly revised 0.2% MoM in November. The December drop was mainly driven by weaker production in the automotive and manufacturing industries. Also, don't forget that industrial data in December is often blurred by the Christmas holidays and subject to significant revisions. Still, after three consecutive months of growth, the small upswing in German industry has again come to a halt. A temporary halt.

At the same time, exports increased by a whopping 4% MoM, from -2.5% MoM in November, suggesting that there is more to the German export sector than US tariffs. Yesterday, industrial new orders increased by almost 8% MoM in December.

Ketchup bottle effect about to start
 

Looking at this week's German macro data shows that we are still in the build-up phase of the ketchup bottle effect, with order books quickly filling but production still lagging behind. It is only a matter of time before industrial production catches up.

Despite today's slight industrial disappointment, tentative signs of a bottoming out are increasing. Industrial orders have now increased for four months in a row, something last seen after the first lockdowns in 2020 and the end of the financial crisis in 2010. Even the argument that the November and December surge in new orders was driven by bulk orders does not really worry us; with the fiscal spending programme, there will be more of these bulk orders coming this year. In 2026, at least, bulk orders could be the new normal rather than the exception.

Even better, inventories have dropped to the lowest level in more than a year, further adding to our expectations of a cyclical upswing in the making. Unfortunately, before anyone starts opening too many bottles of champagne on a Friday morning, capacity utilisation and the competitiveness position in foreign markets worsened again recently, after tentative signs of improvement in the second half of last year.

A few wins do not yet bring the Champions League
 

All in all, we remain convinced of the upcoming economic recovery. The December drop in industrial production is only a temporary halt and not a new downward trend. In fact, German industry is at the start of a clear cyclical upswing. However, this industrial upswing should detract from the fact that the economy’s problems are deeply rooted, often structural and largely self-made, except for the China problem.

Solving these issues quickly is impossible. This is a completely different challenge from some 20 years ago, when Germany was the ‘sick man of Europe’. The economy still needs an almost complete makeover, from familiar measures such as reducing red tape and introducing e‑government, to addressing the financial burden of demographic change or providing relief through tax cuts. It is up to German Chancellor Friedrich Merz and his government to implement these reforms this year and turn a long-awaited rebound into a sustainable recovery.

The German economy left stagnation at the end of last year and should enter a period of cyclical upswing in 2026. However, any recovery of the German economy looks very much like my favourite soccer club ending a series of seven consecutive lost matches with one or two lucky wins. It feels like a better outcome, but dreaming of the Champions League remains strictly forbidden.

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