07:06 AM EDT, 08/07/2024 (MT Newswires) -- Germany's industrial production (IP) Wednesday increased by 1.4% month-on-month in June from a 2.5% m/m decline in May, noted ING.

On the year, IP was still down by 4%.

The rebound in IP was mainly driven by strong production growth in the automotive industry, wrote the bank in a note. After three consecutive drops, the construction sector had a meager rebound but far too little to offset the losses of the three months before.

At the same time, the slump in German exports continued with June exports falling by 3.4% m/m in June from a 3.1% m/m slip in May. With imports increasing by 0.3% m/m, Germany's trade surplus narrowed to 20.4 billion euros from 24.9 billion euros in May.

German industry has been the best example of the entire economy's problems over the last few years: stuck between cyclical and structural headwinds and finally realizing that the old macro business model of cheap energy and easily accessible large export markets is no longer working, according to ING. This is why even four and a half years after the start of the pandemic, German IP is still some 10% below its pre-pandemic level.

Looking ahead, with both the United States and the Chinese economies losing momentum, along with new trade tensions, there is very little hope for a strong export-driven recovery, added the bank. Also, weak industrial orders, high inventory levels and precautionary savings are still weighing on the economy.

On top of that, the increasing number of insolvencies and individual company announcements of forthcoming job restructurings are still hanging like the Sword of Damocles over the labor market this year, pointed out ING.

However, despite a weak start to the second half of the year, the bank doesn't rule out potential positive surprises. Tuesday's increase in new industrial orders as well as Wednesday's IP data suggest that some rebound is still possible.

In fact, inventories have never been at such high levels for such a long time before, still keeping the prospect of a turn in the inventory cycle alive.

All in all, Wednesday's macro data out of Germany has something for everyone: the sharp fall in exports once again illustrates that the export-oriented growth model is no longer working, while at the same time, the rebound in IP brings some glimmers of hopes for at least a small cyclical improvement in the second half of the year.