German industry makes welcome gains

Germany, France, and Italy, which together account for more than half of the eurozone economy, have inflation rates below or exactly at the ECB's 2% target. In Germany, inflation according to the HICP measure fell from 2,6% in November to 2,0% in December. According to the national measure, inflation fell from 2,3% to 1,8%. In France and Italy, inflation has been below rather than above the ECB's target more often over the past two years. In December, inflation in France was 0,7% and in Italy 1,2%. The highest inflation rates are found in Estonia and Slovakia: 4,1%. Among the more established, "old" economies, Spain had an inflation rate of 3,0% in December, and Austria 3,9%.

I don't want to downplay the importance of the smaller countries, but I wouldn't be surprised if low inflation in the three largest countries falls further this year and then leads to deflation concerns within the ECB.

Our inflation rate in December was 2,8%, slightly lower than the 2,9% in November. According to the European HICP benchmark, our inflation rate fell from 2,6% in November to 2,5% in December. Inflation for the eurozone as a whole fell from 2,1% in November to 2,0% in December. Our inflation rate is therefore still above that of the eurozone, although the difference is no longer as large as it was in 2024 and the first part of 2025. Looking at all the eurozone countries, we are roughly in the middle. In eight countries, inflation in December is lower than ours, and in eleven countries it is higher.

So far, Statistics Netherlands (CBS) has only published the "rapid estimate." This provides only very limited detail. The price increase for services declined slightly: from 4,3% in November to 4,1% in December. Services account for approximately half of the inflation basket. Energy (i.e., gas, electricity, motor fuels, and lubricants) has a much smaller weight, but also dampened inflation. In December, prices were 0,4% lower than a year earlier. In November, they had risen by 0,8%. The price increase for industrial goods accelerated: from +0,5% to +0,9%. On average, prices rose by 3,3% in 2025, the same as in 2024.

Household consumption rose by 0,5% in volume in November compared to a year earlier. This is rather meager and was the lowest growth figure of the year. Retail turnover, on the other hand, grew strongly in November: by 3,9% compared to a year earlier, one of the highest percentages of the year. Incidentally, this figure is a nominal value. In volume, retail turnover increased by 2,6%. This is well above the 0,5% growth in total consumer spending, which raises the question of what caused this difference. The answer is likely the weather. In November, it was on average 0,7 degrees warmer than normal. As a result, households needed to heat less, which depressed consumer spending, but not retail turnover.

Industrial production in the Netherlands was 0,9% higher in November than a year earlier. Compared to October, production actually fell by 0,5%. As a result, the index reached its lowest level in four months. Industrial entrepreneurs became less pessimistic in December. The business confidence index improved from -1,7 in November to -1,1 in December, even slightly higher than the long-term average. Entrepreneurs were particularly more positive about their order intake.

The fact that Dutch entrepreneurs were more positive about their order books in December seems to align nicely with Germany's. In each of the three months up to November, German industrial entrepreneurs reported rising order intake. In November, volume increased by 5,6% compared to October. Compared to a year earlier, this was a 10,3% increase. This is very strong, although it was mainly due to orders for large goods. These can be volatile and significantly impact the total figure. Excluding orders for items like trains, ships, etc., the figure still shows a 0,7% increase in December. Domestic orders increased by 6,5%, those from other EU countries by 8,2%, and those from non-EU countries by 2,9%. This bodes well for Germany, where positive economic news is scarce.

Production in German industry also increased in November: by 0,8% compared to October. The manufacturing industry, excluding mining and energy generation, even recorded a 2,0% increase. Destatis, the German CBS, reports that production increased particularly in the automotive sector. The graph shows that the increased production isn't exactly a new upward trend yet, but the losses from previous months have more or less been recovered. Year-on-year, production levels in the manufacturing industry were over 1% higher than a year earlier. The graph also shows that the energy-intensive sectors are not yet performing very well. I find this very worrying, because the five most energy-intensive sectors are of considerable importance to the German economy.

Meanwhile, unemployment in Germany continues to climb. In December, 2,98 million people were unemployed. That's more than during the peak during the coronavirus crisis. As a percentage of the working population, unemployment has been at 6,3% for several months, but that was 5,0% in mid-2022. Chancellor Friedrich Merz recently sent an urgent letter to all members of his coalition government in the Bundestag, urging them to take action now. There's nothing wrong with such a letter, but the apparent necessity of such a letter, while the urgency is apparently not universally recognized, is extremely worrying.

Cloudy picture of American business confidence
What should I write about the US this week? Venezuela, Greenland—I'll leave it at that. According to the ISM (Institute for Supply Management) benchmark, business confidence in manufacturing declined further in December. From 48,2 in November, the index fell to 47,9 in December. With the exception of a brief period earlier in 2025, this index has been below 50 for a long time. This suggests contraction in the sector. The hard production figures don't confirm this. They show moderate growth. S&P Global produces a rival index monthly, the PMI (Purchasing Managers Index). It's well above 50, suggesting robust growth. But the US economy isn't growing that strongly. It's unclear to me what's causing the very large difference between the two indices. The reality seems to lie somewhere in the middle.

Closing
Inflation in the three largest eurozone countries is below or exactly at the ECB's target. Inflation in the eurozone as a whole was also exactly 2,0% in December. In our country, it was 2,8% according to the national benchmark and 2,5% according to the European benchmark, the HICP. It seems likely that inflation in the eurozone and in our country will gradually decline further.

Household consumption growth was somewhat disappointing at 0,5% year-on-year in November, but I suspect the figure was depressed by higher-than-normal temperatures, which meant less heating was needed. Consumers did, however, spend significantly more in stores.

Our industrial production was slightly higher in November than a year earlier, but lower than in October. German industry is experiencing a small recovery. More orders are being booked, and production is also increasing. This is certainly no reason for euphoria yet. We'll see if the improvements continue.

Hans de Jong

Han de Jong is a former chief economist at ABN Amro and now a resident economist at BNR Nieuwsradio, among others. His comments can also be found on Crystalcleareconomics.nl

© DCA Market Intelligence. This market information is subject to copyright. It is not permitted to reproduce, distribute, disseminate or make the content available to third parties for compensation, in any form, without the express written permission of DCA Market Intelligence.