German industrial orders collapse

Analysts warn that the EU’s largest economy could suffer another recession

New orders for German-made industrial goods suffered their sharpest drop so far this year in August, the latest provisional data from the statistics bureau Destatis showed on Monday.

Factory orders in manufacturing were down 5.8% in August from the previous month, and down 3.9% year-on-year. The figures defied analyst forecasts of a 1.9% decline.

Destatis attributed the severity of the month-on-month slump mainly to the high-base effect of the previous month, when large orders were placed in what is classified as ‘other vehicle construction’ (manufacture of aircraft, ships, trains, military vehicles). Excluding this segment, incoming orders were only down 3.4%.

Orders for capital goods and intermediate goods fell by 8.6% and 2.2%, respectively, in August compared to July, while incoming orders for consumer goods dropped 0.9%, according to Destatis.

The capital goods sector includes a wide range of industries, from aerospace and defense to construction and engineering. Intermediate goods are classified as those used as inputs in the production of other goods.

The breakdown of the origin of new orders shows an increase from outside the Eurozone of 3.4%, whereas orders from Eurozone countries fell 10.5%. Domestic orders were down 10.9%.

Germany’s industrial output shrank in July, driven mainly by weak activity in the automotive sector, Destatis said in a separate release on Sunday. Production declined in most manufacturing segments in July, with the automotive industry posting an 8.1% month-on-month drop.

Economists polled by Reuters suggested that there will be no speedy recovery for Europe’s largest economy, and that it could contract again in the third quarter, thus putting the country back into recession. German GDP declined -0.1% in the second quarter.

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After a recession in Germany in 2023, the European Commission expects the country’s economy to stagnate this year. Persistent inflation, high energy prices, and weak foreign demand have been cited as the reasons for the slowdown.