Germany’s Industry Orders Drop for Sixth Straight Month

Tuesday, 06 Nov 2012 11:29 AM

 

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Germany's private sector shrank for a sixth straight month in October and industrial orders fell at their sharpest rate in a year, data showed on Tuesday, highlighting the heavy toll the eurozone crisis is taking on Europe's largest economy.

Tuesday's figures were the latest in a string of data that has sparked talk of recession by indicating that Germany, Europe's economic powerhouse and growth engine, is losing momentum three years into the eurozone's sovereign debt crisis.

Markit's composite Purchasing Managers' Index (PMI), tracking activity in manufacturing and services, fell more than forecast to 47.7 in October from 49.2 in September, well below the 50 mark separating growth from contraction.

"At its current level, the composite PMI figure raises the likelihood of an outright GDP contraction during the final quarter of the year," Markit senior economist Tim Moore said.

"A back-to-back monthly reduction in private sector employment further suggests that the German economy is approaching the year end on a weaker footing, as lower workloads and worsening economic sentiment continue to bite," he added.

Adding to the gloom, seasonally and price-adjusted industrial orders fell by 3.3 percent on the month in September due largely to weaker demand from the eurozone, sending the euro to an eight-week low against the Australian dollar.

The reading came in well below a Reuters poll forecast for a decline of 0.5 percent on the month.

"The latest decline in new industrial orders confirms that the German economy is currently experiencing a dip in growth," said Bernd Hartmann, head of investment research at VP Bank.

"The German economy could slip into a technical recession this year," he added.

Foreign orders tumbled by 4.5 percent, with contracts from the eurozone plunging by 9.6 percent, and domestic bookings dropped by 1.8 percent.

Contraction

Some economists still expect Germany to avoid a recession due to healthy consumer appetite and a robust jobs market, though they say a fourth quarter contraction is possible.

While Germany's economy recovered rapidly from the 2008/09 global financial crisis and steamed ahead during the first two years of the eurozone crisis, growth slowed to 0.3 percent in the second quarter from 0.5 percent in the first.

Business sentiment has tumbled, joblessness has risen - albeit from a low base - and the government has cut its 2013 growth forecast, though exports have surged and consumer morale has improved.

"The weak economic environment in the eurozone and also in the wider global economy is now having a more significant impact on demand for German products than in the first half of the year," the Economy Ministry said in a statement on the orders data, adding that this was indirectly affecting domestic demand.

The ministry said the overarching trend in industrial production was likely to be downward in the coming months.

Germany is due to release September output data on Wednesday at 1100 GMT, and the consensus forecast in a Reuters poll is for production to fall by 0.5 percent.

Industrial companies have taken a hit in recent weeks, with Continental <CONG.DE>, Germany's biggest tire maker, saying it will scale back some production as Europe's debt crisis saps demand, while Linde, the world's No.2 industrial gases producer, is gearing up for tough times by extending its cost-cutting program until 2016.

Orders data for August was revised upwards to a drop of 0.8 percent from a fall of 1.3 percent.

The German government sees the economy expanding by a mere 0.8 percent this year and by 1.0 percent in 2013 but Germany's "wisemen" panel of economic advisers expect the country's gross domestic product (GDP) to grow also by just 0.8 percent next year, Handelsblatt business daily said on Tuesday.

© 2014 Thomson/Reuters. All rights reserved.

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