German Factory Orders Slump Adds To Recession Concerns

(RTTNews) - Germany's manufacturing sector orders decreased in double-digits on a monthly basis in July, which was much more than forecast, largely due to a big order for air and spacecraft in the previous month, and added fuel to worries that the biggest euro area economy may be headed for a recession.

Factory orders fell a calendar-and-seasonally adjusted 11.7 percent in July, preliminary data from Destatis showed Wednesday. This was much worse than the 4 percent slump economists had forecast. The decline for June was revised to 7.0 percent from 7.6 percent. Excluding big orders, factory orders grew 0.3 percent from the previous month.

"It would probably be premature to interpret this recent sideways movement in core orders as the start of a stabilization in demand," Commerzbank economist Ralph Solveen said.

The economist pointed out that companies have simply assessed current demand too negatively in the surveys for the PMI and the Ifo Business Climate. Further, the central banks' interest rate hikes are unlikely to have had already their full impact on global demand for German goods, Solveen said. Commerzbank expects the trend in new orders to point downwards again in the coming months and to increasingly feed through to production, resulting in industry being a major contributor to the German economy contracting again in the second half of the year. Destatis data also showed that foreign orders shrunk 12.9 percent monthly in July. New orders from the euro area decreased 24.4 percent. Domestic bookings dropped 9.7 percent.

The less volatile three-month on three-month comparison showed that new orders were 3.1 percent higher in the period from May to July 2023 than in the previous three months, Destatis said.

In the other transport equipment group, new orders slumped 54.5 percent month-on-month after a revised 72.4 percent jump in June that was boosted by the large-scale order for air and spacecraft in June.

Demand for computer, electronic and optical products, machinery, electrical equipment and fabricated metal products decreased. New orders for motor vehicles, trailers and semi-trailers grew.

Among the various industrial sectors, orders in the capital goods sector shrunk 15.9 percent and those for the intermediate goods sector fell 4.5 percent, Demand for consumer goods decreased 8.2 percent.