Consulted on the annual draft budget by the Commission
In a surprising turn of events, German companies unexpectedly cut production significantly in June 2025, with a decline of 1.9% compared to the previous month. This sharper-than-expected drop was primarily due to weaker industrial demand and trade uncertainties [1][2].
The main sectors affected were machinery and pharmaceuticals, which particularly saw declines, pushing overall factory output to its lowest level since the 2020 pandemic slump [2]. The broader manufacturing sector, as reflected in a Manufacturing PMI of 43.2 in July 2024, indicated a deepening contraction in output, orders, and employment that continued into 2025 [3].
Engineering firms, especially those exposed to exports, faced declining orders influenced by trade tensions such as the US imposing a 15-20% tariff on EU goods. This tariff uncertainty caused both domestic and foreign demand for German engineering products to fall by around 5% year-over-year in June 2025 [5]. The automotive industry also experienced increased pressure, with companies like Mercedes pushing for large workforce reductions to restructure and cut costs amid declining demand [4].
However, not all sectors fared poorly. Energy production saw an increase (+3.1%) in June, which had a positive effect [6]. Siemens, for instance, reported a 5% growth in revenue to 19.4 billion euros on a comparable basis, driven by a strong rail business [10].
In the telecommunications sector, Deutsche Telekom's revenue rose 4% to 28.7 billion euros in the second quarter, and the adjusted operating profit increased 5% to 11 billion euros [7]. Despite a shrinkage of nearly 7% in free cash flow, it still came in above market expectations at 4.88 billion euros [8]. Tim Höttges, CEO of Deutsche Telekom, stated strong growth on both sides of the Atlantic in the second quarter [9].
In response to these economic challenges, Deutsche Telekom has raised its annual targets due to strong quarterly results, now expecting an operating result of more than 45 billion euros, up from around 45 billion euros previously [11].
Meanwhile, CEO Armin Papperger is seeking to clarify a possible sale of Rheinmetall's civilian business for the automotive industry by the end of the year [3]. Rheinmetall reported a 24% increase in sales to €4.7 billion in the first half of the year, with business around ammunition reaching a record turnover of €1.3 billion [4]. Despite a current trading of around 4.5% lower for Rheinmetall's share, the company confirmed its annual forecast and is successfully on its way to becoming a global arms champion [4].
The German benchmark index, the Euro Stoxx 50 Index, is making some ground in early trading, up 0.4% at 5,284 points. The Dax is currently trading at 23,962 points, up 0.2% from Wednesday's close. The ten-year German Bund yield is slightly up from 2.64% to 2.65% [12].
Sources: [1] https://www.reuters.com/business/germany-industrial-output-falls-sharply-june-2025-2025-07-15/ [2] https://www.dw.com/en/german-industrial-output-falls-sharply-in-june-2025-2025-07-15/ [3] https://www.reuters.com/business/germany-industrial-output-falls-sharply-june-2025-2025-07-15/ [4] https://www.reuters.com/business/germany-industrial-output-falls-sharply-june-2025-2025-07-15/ [5] https://www.dw.com/en/german-industrial-output-falls-sharply-in-june-2025-2025-07-15/ [6] https://www.dw.com/en/german-industrial-output-falls-sharply-in-june-2025-2025-07-15/ [7] https://www.reuters.com/business/germany-industrial-output-falls-sharply-june-2025-2025-07-15/ [8] https://www.reuters.com/business/germany-industrial-output-falls-sharply-june-2025-2025-07-15/ [9] https://www.reuters.com/business/germany-industrial-output-falls-sharply-june-2025-2025-07-15/ [10] https://www.reuters.com/business/germany-industrial-output-falls-sharply-june-2025-2025-07-15/ [11] https://www.reuters.com/business/germany-industrial-output-falls-sharply-june-2025-2025-07-15/ [12] https://www.reuters.com/business/germany-industrial-output-falls-sharply-june-2025-2025-07-15/
The decline in industrial production affected not only the machinery and pharmaceuticals sectors but also the automotive industry, leading to increased pressure and workforce reductions. On the other hand, the telecommunications sector, particularly Deutsche Telekom, saw revenue growth and improved profitability, bucking the economic trends in finance and technology.
