German factory orders sink in July, raising risk of recession

[FRANKFURT] German factory orders fell in July, aggravating an industrial slump that has pushed Europe's largest economy to the brink of recession.

Demand fell 2.7 per cent from June, when it rose at the same pace, as orders from outside the euro region plunged. The economy ministry said "in light of ongoing international trade conflicts and modest business expectations in manufacturing, no fundamental improvement in momentum is in sight for the coming months."

Economic prospects for export-reliant Germany remain uncertain amid increased risks of a no-deal Brexit that would plunge the UK deep into crisis, and the intensifying trade war. The US and China hit each other with a new round of import tariffs this month - measures that will have ripple effects around the world - and US President Donald Trump has repeatedly accused Europe of unfair trade.

Purchasing managers' indexes for Germany indicated further declines in manufacturing in August, and signs are increasing that services providers are starting to feel the brunt.

Weakness is also spreading to other parts of the euro area. Factories in Spain and Ireland have seen output shrinking for the past three months, and with Italy deep in a political crisis the European Central Bank predicts the region's subdued pace of growth will continue for now.

The German economy contracted in the second quarter, and the Bundesbank has warned it's likely to do so again in the third. A technical recession is commonly defined as two consecutive quarters of declining output.

In July, orders for basic, investment and consumer goods all declined. Excluding big-ticket items, demand was up 0.5 per cent, the ministry said.

The German government has indicated its willingness to provide economic stimulus should conditions deteriorate, but has so far pointed to existing initiatives for bolstering investment.

Meanwhile, policy makers at the ECB are studying options to ease their monetary stance. They're forecast to announce a cut in the deposit rate further below zero next week, and potentially also a new round of asset purchases.

BLOOMBERG