German economy in shock after industrial orders drop by 8.6% YoY

Helena Grech - 05th July 2019

Figures show that May 2019's slump in manufacturing orders are the worst reading on record since 2009, at the height of the financial crisis.

Ordinarily celebrated as the EU's greatest manufacturing powerhouse, industrial orders to German factories have slumped by a shocking 8.6% when compared with the same period last year. It shrank by 2.2% when using a month-on-month comparison.

Figures show that May 2019's slump in manufacturing orders are the worst reading on record since 2009, at the height of the financial crisis.

ING Think - an economy and finance think tank, commented on Friday that "devastating new orders data just undermined any hopes for an industrial rebound."

"We are starting to lose our optimism. Instead, the order book deflation just reached a new standard. In May, new industrial orders dropped by a painful 2.2% MoM, from a slightly upwardly-revised 0.4% MoM increase in April. After two positive months and hopes for a bottoming out, the downward slide is back again. On the year, new orders were down by 8.6%; the worst YoY drop since 2009. In particular, foreign orders dropped sharply: -5.7% MoM from non-Eurozone countries and -1.7% MoM from Eurozone countries, reflecting continued global uncertainties. After four disappointing months, domestic orders increased by 0.7% MoM. Still, domestic orders have been an even bigger disappointment than foreign orders this year, having dropped by an average of 1.5% MoM since the beginning of the year," ING said in a statement.

"The last two times order books shrank with a similar magnitude was in 2011/12 and 2008/9. While the former fall ended mildly with a decent rebound, the latter continued and we all know how it ended. Back to the current situation, a strong inventory build-up in the automotive industry also does not bode well for the coming months and brings back the not so distant memories of last Fall. Combined with the weakest June performance of the labour market since 2002 and disappointing retail sales, today’s new orders wrap up a week to forget for the German economy. The fear factor is back," it concluded.

Last May, the European Commission had forecast German vulnerability in its manufacturing sector, however it anticipated that strong domestic demand would compensate - which so far has not panned out.

Germany is often seen is a symbol of strength within the European project and a net contributor. Its decline could result in further unrest which has been grappling the EU at large.

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