08 September 2022
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Germany industrial production declines

By Daniel Richards

  • German industrial production declined -0.3% m/m in July (-1.1% y/y), a shallower contraction than the consensus prediction of -0.6%. However, the headline figure was supported by a 1.4% expansion in construction, while stripping this out there was a decline of -0.7% m/m. Energy intensive activity is coming under increasing pressure from elevated energy prices, and manufacturing and mining declined by -1.0% m/m. With energy rationing becoming a greater likelihood in Germany following the indefinite closure of the Nord Stream 1 pipeline, the outlook for German industry will remain weak over the coming months. German aluminium producer Speira GmbH said yesterday that it would reduce its production by 50% as it dealt with higher energy costs.
  • Final readings for the Eurozone economy came back stronger than initially projected in the second quarter of 2022. The revised GDP figure came in at 0.8% q/q, beating the earlier reading of 0.6%, driven primarily by gains in consumption expenditure. While these numbers do point to sustained growth in H1, the region is facing severe headwinds as surging inflation and energy costs bite down on businesses and households. The recent shutdown of the Nord Stream 1 pipeline has only mounted greater concerns and the bleak prospect of energy supply shortages will do naught to alleviate matters. All eyes will be on the European Central Bank decision later today as they respond to these issues and a 75 basis-point hike looks increasingly likely.
  • The European Union is likely to move ahead with a windfall tax on power producers as they look to alleviate the mounting energy crisis. The funds levied will help support consumers who are facing rapidly rising costs. Plans will be discussed at an EU energy ministers meeting at the end of the week. By contrast, new UK prime minister, Liz Truss, has ruled out a windfall tax on energy firms in her first appearance at PMQs, with details around the energy support package set to be published today.
  • The Bank of Canada hiked its benchmark overnight lending rate by 75bps to 3.25% yesterday, as had been anticipated. This marked a slowdown from the 100bps hike implemented at the July meeting and with the interest rate now above the bank’s estimated neutral rate, hikes will slow from here. Nevertheless, they have further to rise yet given comments in the statement and the inflation outlook. Coming up today is the ECB meeting, where European policymakers are also expected to hike by 75bps, taking the deposit rate to 0.75%.
  • Saudi Arabia’s GDP growth for Q2 has been revised up, now standing at 12.2% y/y compared to the initial estimate of 11.8%. The upwards revision was largely driven by the non-oil sector which expanded by 8.2%, compared to the previous figure of 5.4%; Saudi Arabia’s PMI readings this year have indicated an ongoing robust performance by the non-oil private sector. On the other hand, oil GDP growth was downgraded modestly but still remains very high at 23% as oil production was ramped up. 

Today’s Economic Data and Events

  • 16:15 ECB deposit facility rate. Forecast: 0.75%
  • 16:30 US initial jobless claims, week to September 3. Forecast: 235,000
  • Egypt CPI inflation, August, % y/y

Fixed Income

  • Benchmark government bonds closed stronger overnight as markets took hope that policy actions taken so far, whether the hikes in rates in the US or announcement of an energy price cap in the UK, could actually help to limit inflation. Yields on the 2yr UST closed lower by 7bps to 3.4309% while the 10yr settled at 3.2635%, down almost 9bps. European bonds seemed to lead the way with bund yields down 6bps at 1.57% and the 10yr gilt giving up a little of its rapid rise from recent weeks, settling at 3.027%, down 6.4%.
  • Several Fed officials spoke overnight with vice-chair Lael Brainard saying that the Fed was “in this as long as it takes to get inflation down” and that policy would need to “be restrictive for some time” to fight against inflation. Loretta Mester, president of the Cleveland Federal Reserve, said she was looking for several monthly declines in the m/m inflation rate before “declaring victory” on inflation. Finally, Mary Daly from the San Francisco Fed said that the Fed wanted to see rate hikes “slowing the job market, slowing the housing market, slowing the growth of the economy.” Fed chair Jerome Powell speaks later today.
  • Abu Dhabi Commercial Bank priced a USD 500m green bond at USTs + 115bps.


  • Currency markets were relatively quiet in the early session before EURUSD pulled higher later in the session ahead of today’s ECB meeting. Markets are still split whether the ECB will hike by 75bps followed up by smaller moves or use a series of several 50bps hikes. EURUSD settled at 1.0006, up 1%.
  • USDJPY moved ever higher, up by 0.66% to 143.74 even as several government officials spoke out in alarm at the rapid rise in USDJPY. Elsewhere GBPUSD managed to push higher, up by 0.11% to 1.1533 as markets responded positively to statements from BoE officials.
  • Commodity currencies also had a stronger day after the Bank of Canada hiked rates by 75bps and laid out expectations for further hikes to come. USDCAD fell by 0.2% to 1.3121 while AUDUSD added 0.5% to 0.6769 and NZDUSD gained 0.6% to settle at 0.6076.


  • US equity markets enjoyed some positive sentiment yesterday as all three major benchmarks closed higher. The Dow Jones, the S&P 500 and the NASDAQ gained 1.4%, 1.8% and 2.1% respectively, although all three still remain down w/w.
  • There was also some positivity in Europe following recent losses, as the CAC closed flat and the DAX gained 0.4%, potentially boosted by an upgrade to the Q2 growth figures. In the UK, however, the FTSE 100 dropped -0.9%, and while it is one of the best-performing majors this year, it is now down -2.0% ytd.
  • Locally, the ADX added 0.6% but the DFM dropped -0.4%. In Saudi Arabia the Tadawul fell -1.1%.


  • Oil prices are showing signs of a disorderly sell-off with moves exaggerated given the scale of news and data flow. Brent futures fell by 5.2% to USD 88/b, their lowest level since January this year while WTI dropped to USD 81.94/b, down 5.7%. The scale of moves will likely be making OPEC+ officials anxious and prompt more intervention to support markets.
  • The API reported a crude inventory build of 3.6m bbl last week while both gasoline and distillates were lower.

Click here for charts and tables


Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics


Emirates NBD Research Research Analyst

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