This morning has opened with a couple of my themes in play so please put on your seat belts. We can start with the more minor one and we see something I have warned about for a while.
WIESBADEN – Gross domestic product (GDP) fell by 0.3% in the second quarter of 2025 compared to the first quarter of 2025 – adjusted for price, seasonal, and calendar effects. According to the Federal Statistical Office (Destatis), the decline in economic output was thus 0.2 percentage points greater than reported in the flash report of July 30, 2025.
Regular readers will be aware that the output of the German statistics office has aroused my suspicions.For example the way that I think five times now quarterly growth is followed by a contraction meaning that the recession definition is avoided. However the overall picture is depressionary. This morning has brought another feature which is to announce lower revisions once the media attention has mostly moved on. Along the way they have also confessed that the theme of deindustrialistion due to high energy prices is true as well having suggested it was not.
Industrial production, in particular, performed worse than initially expected…….Based on the newly available data, production in the manufacturing and construction sectors, in particular, performed worse than expected in June 2025.
We do not get a lot more detail but are told this.
Production declined in almost all sectors of the manufacturing sector. Only the manufacture of motor vehicles and motor vehicle parts and other transport equipment recorded slight increases compared to the previous quarter.
So the idea that output was boosted by trying to get ahead of the Trump Tariffs was in fact true and thus one would expect a falling back afterwards. So the official figures now admit that. Also if investment is any guide the future is not exactly bright.
In the second quarter of 2025, the year-on-year decline in investment volume continued, falling by 1.9% in real terms. Investment in equipment fell significantly by 3.9% compared to the second quarter of 2024, due, among other things, to a decline in commercial vehicle registrations.
Along the way let me add in another sector which is becoming an issue.
The construction sector recorded a sharper decline than assumed in the GDP flash report, at -3.7%, after a positive start to the year due to good weather conditions.
Another subplot is that there is supposed to be a fiscal expansion and we did get a hint of that here.
Government consumption spending increased by 0.8% compared to the previous quarter.
So even with fiscal assistance we see that the overall position is depressionary.
Compared to the previous year, GDP in the second quarter of 2025 was 0.2% lower in price-adjusted terms than in the second quarter of 2024, with one fewer working day available in the second quarter of 2025. Adjusted for price and calendar effects, economic output therefore increased by 0.2% compared to the same quarter of the previous year.
Take your pick if you want to call it up or down although I note the heading tells us this.
Gross domestic product fell compared to the previous year.
Now if we add in the reality that the French numbers for the second quarter were rather juiced by inventory numbers there is a clear risk there too. This rather leads to the next piece of news.
Digital Euro
Now if you were worried about the prospects for the Euro area economy and are a central banker you might well be looking at the path to lower interest-rates.
EU Speeds Up Plans for Digital Euro After US Passes Stablecoin Law EU officials are accelerating plans for a digital euro following the passage of the US Genius Act stablecoin law, which has deepened European concerns about the competitiveness of their digital currency initiative. ( CN Wire)
It is particularly interesting they feel the need to speed this up as it was supposed to be coming soon anyway as here is ECB President Lagarde from the July press conference less than a month ago..
And in that respect, we are very decisively focused on developing the digital euro and doing everything that we can to be on time and prepared to make this digital form of sovereign money available in the shortest possible time. Which doesn’t mean that it’s going to be tomorrow,
So as usual for her events have proved awkward. Also fans of cash will be made nervous by the next bit.
Cash will always be there,
In fact things got much worse as central bankers frequently praise things so that they can get behind something and thus be in the perfect position to stab it in the back.
I like cash, whether it takes the form of coins or banknotes. This is cash and this is central bank money, if you will. It’s sovereign money.
Indeed it is not her at all pushing the digital Euro it is YOU that want it.
But as technologies evolve over the course of time and as the preference for payment evolves as a result, we need to respond to the demand of our European compatriots.
If only a member of the press corps had the wit to ask who had demanded it?! Okay their pass would be immediately suspended but anyway no-one did.
If we return to this morning’s news we see yet another contradiction of a claim from Christine Lagarde this time of how strong the Euro is.
EU officials worry that the new US legislation will accelerate the already growing use of dollar-denominated tokens and believe a digital euro is essential to protect the single currency’s dominance across Europe. ( CN Wire)
If you believe the argument there the position of the Euro rather contrasts with her boasting because if some new dollar-denominated tokens have that effect it must in reality be in a quite weak position. Also we have been told about all the work that has been going on in this area,well if the report below is true they seem to have not much of a clue.
Since the US legislation was enacted, EU officials have been “rethinking plans for the digital euro” and are now considering running it on public blockchains like Ethereum or Solana rather than the previously expected private blockchain, according to people involved in the discussions.
As Arcade Fire put it .
If I could have it back
All the time that we wasted
I’d only waste it again
If I could have it back
You know I would love to waste it again
Waste it again and again and again.
Comment
Let me tell you what this is really about which is that the Digital Euro would allow the ECB to take interest-rates further into negative territory than the -0.5% of last time around. They stopped there because of fears over the banks which to some extent was backed up by the collapse of Credit Suisse as Switzerland went to -0.75%. According to the IMF -3% is possible under a digital currency. In that world they cannot let you hold cash.
On this road it seems to me that they are more worried about prospects for the Euro area economy than they let on. Also it is hard not to have a wry smile as today is the formal beginning of the Jackson Hole Symposium where Federal Reserve Chair Jerome Powell is supposed to be resisting the pressure for interest-rate cuts from President Trump. Always look at what these people do rather than what they say…….
Enjoy the bank holiday weekend if you are in the UK. My podcast will be available in an hour or two and I will be back here on Tuesday.
