Economy in Brief

In the wake of a mixed in somewhat complex orders report from Germany yesterday, today Germany released its industrial production report. It shows output up by 0.4% in April after several months of declines. There was a strong gain of 1.9% month-to-month in consumer goods output and another strong gain of 1.4% in intermediate goods output. However, capital goods output continues to be weak, falling 1.5% month-to-month and continuing a string of five months in a row when manufacturing output for capital goods has declined.

Sequentially, overall output is showing strengthening growth rates from 12 months to six months to three months. The tendency to strengthen is driven by intermediate goods that have the exact same pattern in play. However, capital goods are showing increasing weakness from 12 months to six months to three months, culminating in a three-month annualized growth rate of -10.5%. The growth rate in consumer goods is weaker over three months and over 12 months but isn't intact progressively over all three periods. The chart is helpful here as it shows recent weakness and a more recent rebound that still leaves year-over-year growth rates declining.

Manufacturing output shows declines over each of these three periods without a clear trend tendency for speeding up or cooling down. Real manufacturing orders are close to accelerating over this same sequence of dates, while retail sector sales in manufacturing show increases in two of the periods, with a decline over three months at the end of the sequence and without a clear trend in place.

Other German industrial indicators are showing consistent weakness and deterioration from 12 months to six months to three months. That holds for the ZEW current index, the IFO manufacturing index, the IFO expectations index for manufacturing, and the European Commission’s index of industrial activity.

As for other early-reporting European economies, we have France, Spain, Portugal, and Norway to compare. France is showing acceleration from 12 months to three months. Spain comes close to showing consistent acceleration and finishes with a massive 60% annual rate of increase over three months. Portugal fails to show consistent signs but ends with strong output growth over three months as well. Norway also fails to show a consistent pattern and has a solid 2.3% growth rate over three months. The results from France and Spain are the most impressive among these—France because it shows consistent acceleration, and Spain because it is so very strong over the last three months.

In the quarter to date (QTD)—with one month of data in hand for the second quarter—all German sectors are showing expansion except for capital goods and manufacturing overall. The indicators for Germany show weakened conditions as we step into the new quarter, except for the EU Commission index. The four European countries we chronicled earlier, all show gains in the quarter to date, with France and Spain showing the most pickup.

The final column of the table ranks year-over-year growth rates on data back to 2006. On this basis, only the German intermediate goods sector has a year-over-year growth rate that ranks above its median for the period. Real manufacturing orders are close to their median with a 49.2 percentile standing, whereas the median occurs at a ranking of 50%. For the other industrial indicators, we compare them to historic index levels, and all four of the indicators are substantially below their historic marks since 2006. Meanwhile, for the four countries in Europe, three of the four are showing industrial output results that rank above their historic medians: Spain shows a 79th percentile ranking, France has a 77th percentile ranking, and Portugal has a 53rd percentile ranking. Only Norway has a subpar (below-median) 25th percentile ranking.

German orders, now available for April, show both domestic and foreign orders are sketching a herky-jerky path higher. The volatility is such that we can't be sure the momentum will remain higher, but for the time being, the present orders are oscillating around an upward trend. There is a particularly striking downward movement in domestic orders, with three sizeable month-to-month drops in the last four months. The drop in foreign orders, at 4.2% month-to-month, is sharp, but that follows two months of very strong gains—although they follow one month of a substantial drop. German orders are simply sketching out a very dissonant path—very hard to discern a trend.

German orders show systemic sequential declines in domestic orders, an event that is offset by systematic sequential acceleration in foreign orders. The net result of total orders is an order slowdown over six months and four months that gives way to a sharp rise over three months.

Sector sales, expressed also in real trend, show consumer durable goods sales and intermediate good sales both engaged in alternating behavior.

Early in Q2, German orders show declines overall an in domestic orders that are only partly blunted by a sizeable rise in foreign orders. Sector sales show a real gain in manufacturing, pushed ahead by consumer durables and intermediate goods, against weakness in nondurables and in capital goods. The broad ranking of annual growth rates for sales and orders show abject ranking weakness for orders and all sales, with the sole exception of orders by foreigners—that series has a ranking above its median at the 60.7 percentile mark.

To compare German industry with other key European sectors, we use the EU industrial confidence gauges. This shows Spain as the only country among Spain, Italy, Germany, and France, with an industrial sector ranking above the 50th percentile mark (above its median reading). All of the manufacturing readings have negative values in April; however, only Germany shows an advance in progression from 12 months to six months to three months.

The industrial order report for April is weak, but there are undercurrents of uptrends embedded in the report. The month’s results and trends may be better than the current month’s topical readings suggest.

In this week’s Letter, we take stock of the latest Blue Chip Financial Forecast (BCFF) survey results and connect them with recent regional developments across Asia. Panellists have raised their policy rate forecasts relative to the pre–Middle East conflict baseline (chart 1), as inflation concerns intensify and several Asian central banks tighten policy (chart 2). Meanwhile, stronger US jobs data have strengthened the higher-for-longer rate narrative, tempering AI-driven equity gains in the US and Asia (chart 3).

Turning to country specifics, the sharp rise in South Korean equities masks a more nuanced picture, where sustained foreign investor outflows have eventually weighed on the market and contributed to weakness in the South Korean won (chart 4). India has experienced a similar pattern, with a range of rupee supportive measures already introduced, although their effectiveness remains too early to assess (chart 5). Indonesia has likewise seen persistent foreign capital outflows alongside a weakening rupiah, with foreign participation in its government bond market declining to a worrying trickle (chart 6).

Blue Chip Financial Forecast (BCFF) survey Looking at the latest Blue Chip Financial Forecast (BCFF) survey results, chart 1 shows that panellists have significantly revised upward their policy rate forecasts since the March survey (conducted at the end of February), reflecting the inflationary implications of the ongoing conflict in the Middle East and the continued closure of the Strait of Hormuz. Such revisions are understandable, as the disruption to one of the world's most important oil shipping routes has constrained global oil supply. With supply reduced while demand remains broadly unchanged, oil prices have risen sharply, feeding through to higher inflation and increasing the likelihood of further monetary policy tightening, or at the very least, a slower pace of policy easing. Among the economies covered by the survey, panellists have revised up their policy rate expectations for Australia by the largest margin, followed by the United Kingdom and the euro area.

GDP growth in the European Monetary Union backtracked in the first quarter, falling by 0.9% at an annual rate after rising by 0.7% at an annual rate in the fourth quarter of 2025. The year-over-year growth rate from the monetary union also slowed sharply to 0.3%. The small positive gain in Q1 2026 comes after gains of over 1% in year-over-year calculations since the third quarter of 2024. The queue ranking of the year-on-year GDP growth rate, on data back to 1997, places the Q1 GDP result in its 21st percentile—roughly a lower one-fifth ranking.

Among the 14 EMU member reporters of GDP data in the table, five countries experienced quarter-to-quarter declines in GDP in Q1 2026: France, Ireland, Luxembourg, Malta, and Austria. Ireland has some peculiar accounting issues because a number of multinational companies are headquartered there for tax reasons; this produced a decline in GDP at a 40% annual rate to dominate these results. And the sharp Irish decline in GDP has an outsized impact on the European Monetary Union GDP report itself. In contrast, among the individual reporting members, the median change in GDP in the first quarter was a 0.2% increase at an annual rate; both Portugal and the Netherlands experienced GDP increases of that magnitude.

In addition to that, the fourth quarter of 2025 showed decelerations in GDP for six of these reporting monetary union members; however, GDP declined in only two of these members in the fourth quarter.

Year-over-year data show GDP growth rates in the first quarter declining broadly in 11 of the 14 reporting members in this table. That compares to a slowdown reported by six member countries in the fourth quarter of 2025.

The four largest monetary union members experienced a slowdown in GDP, with growth at 1% in the first quarter compared to 1.3% in the fourth quarter; that 1% growth rate is the same as in the third quarter of 2025. The rest of the monetary union saw a sharp decline as GDP contracted at a 5.7% annual rate, with the Irish data playing a big role in that for the rest of the monetary union. For the four largest EMU economies, GDP advanced by 0.9% in Q1 2026 on a year-over-year basis. Year-over-year changes show relatively steady growth in the four largest monetary union economies, with growth rates of 1% or 0.9% in each of the last four quarters, while the rest of the monetary union shows much stronger growth rates over the last four quarters, but for that group, growth rates have been generally decelerating. That process culminates in a decline of 1.2% for year-over-year GDP growth in Q1 2026 for the rest of the EMU.

Over these last four quarters when the rest of the monetary union growth rates—apart from the four largest economies—showed steady slippage, Switzerland also showed a steady deceleration in GDP growth; so has the United Kingdom. Japan also has weakening growth over these last four quarters. However, the U.S. does not fall into that pattern, having maintained steady growth and then experienced a pickup in growth to 2.6% year-over-year in Q1 2026.

Few show above-median growth Among the countries in the table, very few have GDP growth rates year-over-year that are above their medians on performance back to 1997. However, countries with queue standing above their 50th percentile for growth rates reflect that phenomenon; those countries are the U.S., Spain, Portugal, Italy, Luxembourg, Greece, and Denmark. Belgium, Ireland, Cyprus, and Switzerland have growth rates ranked below the 20th percentile in the queue ranking system. The median and year-over-year growth rate in the monetary union has a 30.4 percentile ranking, similar to Japan with a 36.4 percentile ranking for its year-over-year GDP. Growth metrics are showing some struggle, and the combined weight of the ongoing Ukraine war and the new effect of the Middles East conflict take their tolls.