Deutsche Bank expects Germany’s manufacturing production to rise by 2 to 3% by 2026. This would be the first increase since 2021. However, production in 2025 will still be 15% lower than the peak in 2018.
The growth anticipated for 2026 and 2027 could benefit from supportive fiscal policies and better tax depreciation for investments. Still, these increases won’t fully recover losses from the past without necessary reforms. Fiscal measures and government aid, such as temporary assistance for industrial electricity costs and subsidies for grid fees, are likely to help industrial companies.
Expansionary Fiscal Measures
Expansionary fiscal measures are expected to increase orders for industrial companies, including those in defense manufacturing. While these signs are promising, challenges still exist. It’s unlikely that production will return to pre-decline levels without reforms.
Signs show that the downturn in Germany’s manufacturing sector may be over. Forecasts suggest a 2 to 3 percent increase in production for 2026, marking the first real rise since 2021. This indicates a more favorable environment for German industrial assets.
This positive outlook is backed by new data. The S&P Global Manufacturing PMI for January 2026 has risen to 48.5, the highest in over a year. While it is still below the 50-point threshold for growth, the upward trend strongly suggests that the worst is behind us. This situation supports taking bullish positions on German financial instruments.
With this promising outlook, traders might consider buying call options on the DAX index, which has already climbed toward 19,500 points. Major industrial players like Siemens and Volkswagen stand to benefit directly from the recovery in production. These options allow traders to embrace potential gains while reducing downside risks.
Recovery and Trading Opportunities
The recovery is also a positive sign for the euro, which has recently strengthened to about 1.11 against the US dollar. A healthier German manufacturing sector, a key part of the Eurozone economy, could lead to further appreciation of the euro. Traders may want to explore EUR/USD call options to take advantage of this trend in the coming weeks.
It’s important to note that overall production in 2025 was still 15% below the 2018 high, indicating that recovery will be slow rather than rapid. As a result, selling out-of-the-money puts on industrial ETFs could be a wise strategy. This would allow traders to collect premiums while betting on limited declines.
The recovery is largely driven by government support for energy costs and increased defense orders. This makes call options on companies in the defense and heavy machinery sectors particularly appealing. These companies are likely to see direct benefits from fiscal policies leading to higher orders this year.
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