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Germany: No improvement on the horizon for the industry

BERLIN (Reuters) – Orders to the industry have dropped much more than expected in Germany in May and the German Ministry of Economy has stressed that there is probably no improvement in the coming months.

These orders fell 2.2% in May compared with the previous month when they rose 0.4% in April (+ 0.3% in the first announcement).

Economists polled by Reuters projected a much less significant decline, only 0.1%. Projections ranged from a decline of 2.4% to a rise of 1.0%.

“The big deflation of the order book continues”, observes Carsten Brzeski, an economist of ING. “The catastrophic data of the new orders destroy all hope of an industrial rebound”.

This is confirmed by other statistics, be it machinery orders or Purchasing Managers’ Indexes (PMI) for the secondary sector.

A report published Thursday by the Ifo Institute shows that German industrialists will probably resort even more to the “Kurzarbeit”, a part-time mechanism designed to prevent mass dismissals.

“Not good to see!” Responded Thomas Gitzel, an economist at VP Bank. “Given the significant decline in unfilled orders, industrial production will remain extremely low in the second half of the year and this increases the risk of recession in the German economy”.

However, the situation is very different depending on whether the domestic market or the export market is being examined.

Domestic orders rose 0.7% in May, following a 0.8% dip in April, while export orders fell 4.3%, after gaining 1.1% in April. April, with the contraction being particularly notable with countries outside the euro area.

The Federation of German Chambers of Commerce and Industry DIHK has reduced this week more than half its export growth forecast this year, to 1%, while the VDMA Federation of Engineering has observed that tariffs imposed by the United States and China would contribute to a 2% drop in production this year.

Consumer spending has replaced exports as a growth driver for Europe’s largest economy, which is in its tenth year of expansion.

Germany posted positive growth in the first quarter, but the Bundesbank expects a slight contraction in the coming quarter.

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