Shock slide in German factory orders sparks recession fears
Factory orders fell sharply in Germany in December, fuelling concerns that the eurozone’s powerhouse economy could be heading towards recession.
Factory orders were down 1.6% month-on-month, well below the consensus of a 0.3% increase. Year-on-year, orders were down 7%, compared to a revised increase of 3.4% for November, according to data released by Germany’s Federal Statistics Office.
Domestic orders fell 0.6%, against a 3% improvement in November, while exports orders were down 2.3%. New orders from the eurozone rose 3.2% but from countries outside the single currency bloc, there were off 5.5%.
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the 1.6% decline was a “nasty headline”.
He continued: “Across sectors, weakness in capital and intermediate goods were the primary drivers, especially on the export side to non-eurozone countries. By contrast, new orders for consumer goods rebounded strongly across the board, pointing to a revival in the auto sector towards the end of the year.
“The year-over-year rate was depressed by base effects from a very strong finish to the year in 2017, but the message remains clear: German manufacturing is suffering.”
The data coincided with an update on Germany’s construction sector. IHS Markit said construction PMI was 50.7 in January, down from 53.3 December. Anything above 50 represents growth, while a below 50 reading indicates a contraction.
Weather, however, looked to have played a part in the fall, argued Phil Smith, principal economist at IHS Markit. “After a solid end to 2018, the German construction sector lost some momentum in January, with the PMI data signalling softer growth across a number of key business metrics.
“However, while December was unusually mild, the opposite was true of January. Severe bad weather probably did cause some disruption to actual work on the ground.”
Unemployment remains at a record low in Germany, with wages improving and inflation at around 1.7%.
But there remains growing concerns that the economy is stalling. Last month, the Economy Ministry cited protectionism, Brexit and taxes as key risks as it cut GDP forecasts for 2019 to 1% from 1.8%.
Analysts at Deutsche Bank said in a note that the economy had been a “major disappointment” so far this year, adding: “The development of several key cyclical indicators is telling us that the German economy is drifting towards recession right now.