Economy in Brief

The National Australia Bank (NAB) index rose in May after three straight months of declining breaking a string of weakness. However, sequential changes still show declines on balance over 12 months, six months and three months. The level of the current index ranks only in its 32.6 percentile on data back to early 2003. The ranking of the three-month moving average is in its 17.6 percentile and for the 12-month moving average the ranking is in its 20th percentile. The index clearly is weak and it has been weak for a while; however, forward orders suggest that there may be some improvement in train, although that reading too remains with a weak, though improving, ranking.

Bad breadth... The indexes and the components of the Australian index show broad based weakness over three months, six months and 12 months. Over recent months proving characteristics have shifted to be slightly more positive. As in March, 68.8% of the categories showed improvement month-to-month, in April only 18.8% showed monthly improvement while in May over 60% showed improvement. However, the monthly data are in sharp contrast to the sequential data where three-month trends show only 18.8% of the categories improving, only 37.5% improving over six months, and compared to a year ago only 25% are improving. So, the Australian index definitely chronicles a lot more weakness in train despite the fact there may be some hints of improvement or, at least, less weakness, creeping in.

Weak, in a long historic context as well Among the 13 categories in the index, there are only six of them that have queue percentile standings above the 50% mark, a level that indicates they're above their historic medians; three of those firmer observations signal excessive price pressures coming from labor costs, purchase costs, and prices-outright. Interestingly, Australia continues to show exports and export sales as above median despite the hostile global environment with tariffs rising and trade wars threatening Australia also shows an above median reading for capacity utilization.

On balance, the report is not very reassuring although there is an increase in the overall index in May and there are slightly weaker decelerations in the three-month and 12-month moving averages, but those are more cases of less weakness in train than evidence of any outright improvement occurring. The NAB index continues to be a downbeat reading on the Australian business situation although the resilience in the export categories is something of note.

The economy watchers readings improved broadly, rising month-to-month across 70% of categories in the current index and across all categories in the future index. In sharp contrast, all the current and future readings are lower year-over-year and most of them are lower over six months- all are lower on a six-month average basis- as well as over three months compared to six months.

The month’s strength is widespread as one-month phenomenon, but it clearly comes amid a period when growth has been relentlessly weak. It is not clear that the one-month signal is strong enough to dominate the weak trend.

The levels of the readings are clearly and broadly weak. No future index has a ranking above the 50-percentile mark (above its median) and only one current reading -housing- is above its median, but that is only barely and only for a month and not an average basis.

The future indexes are relatively stronger for corporations, both manufacturing sector and in the nonmanufacturing sector, as well as for eating and drinking places. The services sector has the lowest ratio of the future reading ratio to the current reading.

Despite the ‘pop’ in the reading for this month, the report is hardly upbeat. Japan’s economy seems locked in a weak trend with the current month showing a sigh of life. The question is whether this signal is real and lasting or not. We can’t know that yet.

This week, we focus on critical minerals, which have moved into the spotlight following China’s recent restrictions on rare earth exports. The move triggered widespread supply chain disruptions and renewed attention to an issue that had long flown under the radar. A closer look reveals that just a handful of countries dominate global production—chief among them, China, as shown in chart 1. This concentration highlights the growing geopolitical and economic importance of mineral-rich nations in supporting key industries such as automotive, aerospace, and defence. The implications for national security are significant.

China’s influence goes well beyond raw material reserves. It has also positioned itself as a leading refiner of critical minerals such as copper and nickel—even though it is not the top producer of the raw ores (see chart 2). In the case of rare earths, China has become a key supplier to Western economies, including the United States and the Euro area (chart 3). Its recent export restrictions on rare earth elements (REE) are a direct response to ongoing trade actions and have already triggered disruptions across key industries. Ford in the US and Suzuki in Japan, for example, have reportedly paused production due to shortages of these inputs. Meanwhile, non-US automakers—particularly in Japan—face additional pressure from US auto tariffs. These have forced firms to slash export prices (chart 4), squeezing profit margins and weakening overall financial performance.

But not all signs point to prolonged disruption. There is a glimmer of hope. In Europe, negotiations with China suggest a possible easing of REE-related disruptions, although any concrete relief will likely depend on broader trade discussions. One likely sticking point is the surge in Chinese EV exports to Europe, which has saturated local markets and drawn import tariffs (chart 5). Meanwhile, US–China trade talks resume in London this week, with rare earths a central topic. Markets and policymakers alike are watching closely, hoping for signs of de-escalation. That said, the impact of these mutually imposed trade actions is already visible, as shown in chart 6. While negotiations continue, disruptions remain an active threat to supply chains, industrial output, and economic stability.

Global critical minerals production While headlines are often dominated by breakthroughs in high-end and essential technologies, what tends to be overlooked are the raw materials that make those innovations possible. These foundational inputs are known as critical minerals—so named because of their vital role in enabling advanced technologies and their often-fragile supply chains. Critical minerals include rare earth elements (REEs)—a group of 17 chemically similar elements essential to high-tech, clean energy, and defence applications. Also considered critical are minerals used in various battery chemistries, including those for electric vehicles (EVs) and associated infrastructure. These include nickel, cobalt, graphite, and copper. Additionally, elements like gallium and germanium are indispensable for semiconductors, fibre optics, and other high-tech systems.

In their raw form, the global production of critical minerals is highly concentrated. As shown in chart 1, only a handful of economies account for the majority of the world's production—and this pattern repeats across most critical minerals. Countries such as China, Russia, South Africa, and the Democratic Republic of the Congo consistently emerge as dominant producers across several of these materials. While production dominance alone may not always present a risk, it becomes strategically significant when geopolitical tensions interfere with trade flows. This issue has come into sharper focus as China’s central role in global mineral supply chains is increasingly scrutinized—especially in the wake of renewed US-China trade tensions following President Trump’s second term in office.

German industrial production (headline series including construction) fell by 1.4% month-to-month in April as a recent see-saw pattern of monthly increases vs. declines is in train back to October. Output declines in the month were distributed across consumer goods, capital goods and intermediate goods.

In addition, construction output fell in April, dropping by 1.5% month-to-month after rising in March and declining in February.

Manufacturing output fell by 1.8% month-to-month in April as real sales also fell by 1.5%, and as real orders for manufactured goods rose in the month by 0.6%.

Sequential trends The sequential trends for IP and its various sectors as well as for orders show unclear trends. Capital goods and intermediate goods show improving trends (from 12-months to 6-months, to 3-months) as output transitions from declines over longer periods to increases over the recent shorter periods. Manufacturing joins that sequence as it also shows a transition from a period of declining output to increases in recent periods. But construction trends remain erratic and the trend for real orders is also chaotic, although it is topped up by a very strong gain over three months. Real sales are on board for the transitional move from declines to sales increases over recent periods. While there is some degree of mixed trends in the data, there are also some traces of an ongoing recovery with improvement in progress. It is still nascent, but the improvement is identifiable and easily recognizable.

Surveys Manufacturing surveys from ZEW, the IFO, and the EU Commission are mixed in their message. The ZEW survey shows a sharp improvement month-to-month. The IFO shows weakening for manufacturing and for manufacturing expectations. The EU commission index shows an improvement month-to-month. Compared to February levels, these same four readings show contrary results. Their sequential signals remain mixed, both in terms of their lack of monotonic signaling as well as in terms of the simpler comparison of the 12-month readings to the 3-month readings. There is simply no clear signal on direction here.

Other Europe Portugal and Norway offer two separate Northern- and South-European signals; both show strongly improving sequential trends. Their month’s performance remains chaotic, but their sequential performance is upward and a clear positive signal.

QTD Quarter-to-date signals (QTD) show mixed results for output-based measures and for real orders in Germany. But the survey data show improvement QTD and the two European readings for Portugal and Norway show gains in progress as well.

Queue standing The queue standing data that ranked performance over a longer profile show most readings with rankings below the 50% mark which in all cases leaves the current reading below its median for this period (data back to 2000), the exceptions with above 50-percentile readings are consumer goods in Germany (54.6%), real manufacturing orders in Germany (66.7%), and Norway (99.6%).

Summing up Despite the month’s step back, there is still evidence that growth and improvement is stirring or trying to stir. Economic performance often is not monotonic and various factors including weather and other unique and temporary factors can interrupt even a solid trend. There is reason to be hopeful that German data still show progress and with the mandate to do more to defend themselves in NATO is also a spur to output we should expect over the coming months.