This slump in factory orders is bad news for Germany’s economy, says Katharina Utermöhl, senior economist for Europe at Allianz SE.
She is worried that global trade tensions (with the US and China yet to resume negotiations) are hurting:
In particular, the outlook for foreign demand has deteriorated considerably. The tentative spring recovery in global trade has thus turned out to be very short-lived. In view of the lingering trade uncertainties and elevated inventory levels, a swift recovery for German industry is not in the cards. Germany’s export economy, which is strongly geared to industrial goods, will clearly remain under pressure.
So far, domestic demand has been holding up relatively well, but it is only a matter of time before the weakness in industry also affects investment activity and consumption in a more pronounced manner. Overall, we expect GDP growth for Germany of only 0.8% in 2019.
This chart also shows that consumer demand has propped up orders:
ING: This is devastating
Carsten Brzeski of ING is aghast to see that German factory orders have shrivelled so badly in May.
The great order book deflation continues. Devastating new orders data just undermined any hopes for an industrial rebound. We are starting to lose our optimism. Instead, the order book deflation just reached a new standard.
In May, new industrial orders dropped by a painful 2.2% MoM, from a slightly upwardly-revised 0.4% MoM increase in April. After two positive months and hopes for a bottoming out, the downward slide is back again. On the year, new orders were down by 8.6%; the worst YoY drop since 2009.
Brzeski points out that other German economic data has weakened too:
Combined with the weakest June performance of the labour market since 2002 and disappointing retail sales, today’s new orders wrap up a week to forget for the German economy. The fear factor is back.
This tumble in German factory orders suggests its economy struggled in the last quarter, warns Oliver Rakau of Oxford Economics:
German factory orders slide again
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Alarm bells are flashing over the German economy this morning, after its factories suffered another slump in orders.
German industrial orders shrank by 2.2% month-on-month in May, new figures show, much worse than the 0.1% fall expected.
On an annual basis, orders were a shocking 8.6% lower than in May 2018, which appears to be the weakest reading since 2009, during the financial crisis.
Destatis, the German statistics body, reports that German firms suffered a sharp slump in overseas orders:
Domestic orders increased by 0.7% and foreign orders fell by 4.3% in May 2019 on the previous month. New orders from the euro area were down 1.7%, new orders from other countries decreased 5.7% compared to April 2019.
Germany’s factories are an important bellwether for global demand, so this may show that the US-China trade war is causing more damage to the world economy.
Demand for expensive equipment and machinery (known as capital goods) was particularly poor, suggesting companies are too nervous to commit to major spending decisions.
Destatis explains:
In May 2019 the manufacturers of intermediate goods saw new orders fall by 1.5% compared with April 2019. The manufacturers of capital goods showed decreases of 2.8% on the previous month. For consumer goods, a decrease in new orders of 0.7% was recorded.
City experts are alarmed – such weak data suggests Germany’s economy is in trouble, and that’s a bad sign for the eurozone economy as well.
More reaction to follow!
Also coming up today
The latest US jobs report will show whether employment growth bounced back last month, after slowing sharply in May. A poor reading might increase fears that America’s economy is slowing….. and also increase pressure to cut US interest rates soon.
While in the eurozone, Greece is preparing to head to the polls this weekend in a general election which could end Alexis Tsipras’s time as prime minister. The right wing New Democracy have a chunky lead in the opinion polls, ahead of Tsipras’s left-wing Syriza party.
The agenda
- 8.30am BST: Halifax’s UK house price survey for June (expected to show prices fell by 0.4%)
- 1.30pm BST: US non-farm payroll for June (expected to show 160,000 new jobs, up from 75,000 in May)
Updated