German factory orders decline as recession looms

GERMAN factory orders continued to decline in September, adding to concerns that Europe’s largest economy is slipping into a recession as it struggles with surging energy costs.

Demand fell 4 per cent from the previous month, a steeper drop than the 0.5 per cent median estimate in a Bloomberg poll of economists, and accelerating from a revised 2 per cent decrease in August.

The worse-than-expected decline was driven by foreign orders, which slumped by 7 per cent, the Federal Statistics Office said on Friday (Nov 4). Demand from the euro area was 8 per cent lower, compared with a 6.3 per cent decrease from other countries. Domestic orders grew slightly.

“The outlook for manufacturing activity remains gloomy in light of high energy prices, which are increasingly affecting consumers,” the German economy ministry said. “After the surprisingly positive development of gross domestic product in the third quarter, a weak fourth quarter looms.”

Factories in the whole region are struggling with record inflation that is sapping demand for their goods. Surveys by S&P Global signalled this week that the euro area’s manufacturing sector is already in recession, with Germany among the worst-performing nations.

German companies have had to reduce their reliance on Russian natural gas quickly, with supplies having been cut due to Russia’s war in Ukraine. While the likelihood of winter shortages has decreased, thanks to a mild start to the heating season, a jump in prices is weighing on companies and households.

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German orders for consumer goods still rose 7.2 per cent in September, but producers of capital goods used for manufacturing and providing services declined by 6 per cent from the previous month, said the statistics office. More orders were completed than new ones received for the first time since May 2020, despite continued supply-chain tensions. BLOOMBERG