Germany factory output slumps in July as autos hit the brakes

German industrial production contracted sharply in July, falling by 1.1% month-over-month against market expectations of a 0.1% increase, following a downwardly revised flat reading in June. The substantial slump was heavily driven by the automotive manufacturing sector, which plunged 9.2% month-over-month due in part to scheduled multi-week production pauses. Weakness was widespread across core manufacturing segments, with capital goods production falling 3.4% and consumer goods declining 2.2%, while energy production was the primary bright spot, rising 4.7% on strong wind and solar generation. Excluding energy and construction, underlying German industrial output dropped 2.2% on the month. However, the three-month moving average remained slightly positive at +0.4%, indicating the data reflects near-term friction rather than an outright industrial collapse. The weak print contrasts with recent improvements in forward-looking surveys, such as the August manufacturing PMI and July factory orders, highlighting a lag before orders translate to output. The immediate market impact is expected to remain limited as the ECB remains primarily focused on headline inflation trends.