Deutsche Bank anticipates a 2 to 3% rise in Germany’s manufacturing production by 2026, marking the first such increase since 2021. This projected growth follows a period of decline in the sector, with production in 2025 being 15% below the 2018 peak.
The anticipated growth in 2026 and 2027 could continue, aided by expansionary fiscal policy and improved tax depreciation for investments. However, these increases won’t completely offset past losses without structural reforms. Fiscal policy and government support, such as temporary industrial electricity pricing and grid fee subsidies, are expected to support industrial companies.
Expansionary Fiscal Measures
Expansionary fiscal measures are expected to result in higher orders for industrial firms, including those producing defence goods. Despite these positive signs, challenges remain, and achieving pre-decline production levels is unlikely without reforms.
We are seeing signs that the downturn in Germany’s manufacturing sector has ended, with forecasts pointing to a 2 to 3 percent increase in production for 2026. This would mark the first real rise in industrial output since 2021. This shift suggests a more positive environment for German industrial assets.
This optimistic view is supported by the latest data, as the S&P Global Manufacturing PMI for January 2026 recently climbed to 48.5, its highest level in over a year. While this is still below the 50-point mark indicating growth, the clear upward trend is a strong signal that the bottom is behind us. This strengthens the case for taking bullish derivative positions on the German economy.
Given this outlook, traders should consider buying call options on the DAX index, which has already responded by rising toward 19,500 points. Key industrial names like Siemens and Volkswagen are poised to benefit directly from recovering production. These options provide a way to gain exposure to the upside while limiting potential downside risk.
Recovery and Trading Opportunities
The recovery is also a positive signal for the euro, which has recently strengthened to around 1.11 against the US dollar. A healthier German industrial sector, the backbone of the Eurozone economy, supports further currency appreciation. Traders could look at EUR/USD call options to capitalize on this trend over the coming weeks.
However, we must remember that overall production last year, in 2025, was still 15% below its 2018 peak. This indicates the recovery will be gradual rather than explosive, suggesting that selling out-of-the-money puts on industrial ETFs could be a prudent strategy. This approach allows traders to collect premium while betting that a major decline is unlikely.
The recovery is being driven by specific government actions, including support for energy costs and increased orders for defense goods. This makes call options on companies in the defense and heavy machinery sectors particularly interesting. These firms are likely to see direct benefits from fiscal policy translating into higher orders this year.
