What's going on?

Fresh data out on Wednesday showed Germany�s industrial production shrank by more than expected in June, putting investors on recession watch�

What does this mean?

Economists had predicted that Germany�s production of everything from machinery to consumer goods would decline in June compared to the same time last year. But they weren�t braced for the more-than-5% drop that was actually reported � the steepest in a decade, with almost every industry shouldering their share of the blame.

Tuesday�s data had shown an improvement in German factory orders in June, thanks to a surprise pick-up in orders from abroad (even as local demand continued to languish). But the sun had barely risen before Wednesday�s report sent investors doomsday planning. Germany�s economy barely grew in the first quarter, and investors are wondering whether it has in fact shrunk in the second.

Why should I care?

The bigger picture: When German industry�s in trouble, its banks might be too.
In its second-quarter update on Wednesday, Germany�s second-largest bank, Commerzbank, said it�d increased the amount of money it keeps aside in case its clients don�t repay their loans. Since a new CEO came in three years ago, Commerzbank has pivoted away from risky investment banking activities and toward steadier corporate loans. If the current German slowdown leaves some firms short of cash, it could end up exposing Commerzbank to greater losses than its rivals.

For markets: Weighing the chances of a German recession.�
Germany�s second-quarter growth data will be released next week, and some economists expect the eurozone�s largest economy to have shrunk. And with recent data looking so bleak, some have even suggested that the third quarter will see a shrink too, meaning Germany would enter a (whisper it) recession. On top of the European Central Bank�s expected rate cut in September to help the eurozone economy at large, the country�s own central bank might be pressed to explore some economy-boosting measures too.