Germany – new orders fall sharply

This weak figure for order intake in August is not really surprising. The Ifo Business Climate and the Purchasing Managers' Index for manufacturing had already signaled recently that business was likely to deteriorate further. Of course, there are some points that put the significant decline compared to July into perspective such as the fcat that the figures for July were revised upwards. In addition, there are always strong fluctuations during the summer vacation period, and part of the decrease is due to a smaller number of big ticket orders, which have little impact on production in the short-term as they are often processed with a considerable time lag and over a longer period. However, even the core figure excluding big ticket orders fell sharply by 3.4% compared with the previous month, canceling out the stabilization of incoming orders that had been emerging in recent months.

This increases the risk that the German economy also shrank in the third quarter. Although the figures for industrial production due out tomorrow are expected to show a fairly significant increase – after a weak July – because car production is likely to have increased significantly as a result of shifts in the timing of plant closures during the summer. For the third quarter as a whole, however, industry is expected to show a minus. And the fourth quarter is also not expected to see any growth. Although the diminishing effect of the global interest rate hikes suggests that the economy will revive in the coming year, the many structural weaknesses of the German economy and the likelihood of continued sluggish demand from the important export market of China mean that the recovery is probably no more than moderate.

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