08:36 AM EDT, 10/08/2025 (MT Newswires) -- German industrial production (IP) plunged by 4.3% month-on-month in August, from a 1.3% month-over-month increase in July, said ING.

On the year, IP was down by almost 4%. The manufacturing and automotive industries mainly drove the drop in production, wrote the bank in a note after Wednesday's data release.

A glimmer of hope is the second consecutive increase in construction activity, stated ING.

According to the statistical office, the sharp drop in production in the automotive industry could be related to the summer holiday and changes in production facilities. However, even if there might be some one-off factors at play, the bank fears that the sharp drop in IP also heavily reflects the end of United States frontloading.

This remains the clearest illustration of the structural challenges facing German industry, added ING. More than six years since the pandemic began, IP in Germany is still some 15% below its pre-pandemic level.

Production in energy-intensive sectors is still around 4% below its 2024 level. At the same time, the fact that capacity utilization in German industry has now remained at the low levels last seen during the financial crisis for more than a year is another painful sign of this structural weakness.

Still, with the announced fiscal stimulus after the German elections earlier this year, optimism for at least a cyclical rebound had returned, noted the bank. Indeed, the first months of the year finally saw the long-overdue turning of the inventory cycle in German industry.

However, it increasingly looks as if this upswing was almost entirely the result of the frontloading of U.S. products in anticipation of looming tariffs. Wednesday's drop in IP, falling new orders for the last four months, as well as inventories returning to the highest level since February, don't bode well for the coming months.

To end on a somewhat more positive note, hope remains that the fiscal stimulus, and particularly defense spending, could still feed through to industry over the coming months. If not, the long to-do list of the German government will get even longer, with the next item being the need for traditional short-term stimulus -- or at least a stabilization package, according to the bank.

All in all, it's not only the general mood in Germany that turned sour over the summer. Available monthly data so far suggests that the risk of yet another quarter of contraction and so an outright technical recession is very real, said ING.