German Exports and Industrial Production Slide as Tariffs Bit; EUR/USD Dips

US Tariffs Hit German Industry: ECB Faces Fresh Pressure

US tariffs hit the German economy in April, triggering declines in exports and industrial production.

Exports fell 1.7% month-on-month in April after a 1.1% rise in March, while imports jumped 3.9% (March: -1.4%). As a result, the trade surplus narrowed from €21.1 billion in March to €14.6 billion in April.

According to Destatis:

• Exports to non-EU countries tumbled 4.8%, while imports rose 3.4%.
• Exports to the US plunged 10.5% to €13 billion, the lowest since October 2024. However, imports from the US rose 3.9%.
• Meanwhile, exports to EU countries increased 0.9% in April, with imports up 4.5%.

Industrial production also took a hit, falling 1.4% month-on-month in April after rising 2.3% in March.

According to Destatis, production in the pharma industry slumped 17.7%, with the manufacture of machinery equipment down 2.4%. In contrast, production in the construction sector and the food industry contributed positively.

There was a common thread across the two reports. While domestic and Euro Area demand remained resilient, overseas orders weakened, potentially impacting production. With Germany’s economy heavily dependent on global trade, the imposition of tariffs is altering supply-demand dynamics and dampening headline figures.

German Economic Data Could Boost July ECB Rate Cut Bets

On Thursday, June 5, the ECB cut interest rates by 25 basis points but refrained from committing to further easing. ECB President Christine Lagarde’s unexpectedly hawkish press conference pressured the DAX and EUR/USD, pulling both back from intraday highs.

However, today’s data underscores the potential drag of prolonged US tariffs on the German economy, supporting a more dovish ECB stance. Market reaction reflected this shift, with the EUR/USD pair responding to both the trade figures and a potentially less hawkish ECB stance.

Frederik Ducrozet, Head of Macroeconomic Research at Pictet Wealth Management, remarked:

“ECB staff projections with trade shocks: in a severe trade war scenario, GDP is 1% lower and inflation down to 1.8% in 2027, calling for more rate cuts. A mild scenario implies stronger growth and stable inflation, with the ECB likely on hold.”

EUR/USD Reaction to German Trade and Production Data

Ahead of today’s stats, the EUR/USD climbed to a pre-stat high of $1.14570 before falling to a low of $1.14302.

In response to the reports, the EUR/USD pair rose to a high of $1.14382 before sliding to a low of $1.14328. The EUR/USD retreat reflected the influence of the data on sentiment toward the German economy and ECB stance.

At the time of writing, the EUR/USD was down 0.10% to $1.14334.

Looking Ahead

The focus now turns to the resumed US-EU trade negotiations. Any meaningful progress toward a trade deal could ease concerns about external demand for Euro Area goods, potentially sending EUR/USD higher. Meanwhile, ECB commentary will remain pivotal for the short-term EUR/USD trajectory.

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