Germany Factory Orders Slump Most Since Lockdowns in 2020

(Bloomberg) — German factory orders plummeted in July, a sign that the woes of Europe’s biggest economy continued into the third quarter.

(Bloomberg) — German factory orders plummeted in July, a sign that the woes of Europe’s biggest economy continued into the third quarter.

Demand decreased by 11.7% from June, far worse than the 4.3% drop expected by economists in a Bloomberg survey. That decline — the worst since the height of the pandemic in 2020 — was due to major orders, without which the gauge would have increased by 0.3%. 

The drop in what is a volatile series did follow three months of gains.  

Germany is on track to show the worst economic performance in the Group of Seven industrialized nations this year as the toxic combination of weak Chinese demand and an energy crisis cripple the manufacturing sector that has long been a motor of European growth. Adding a further brake to expansion is the impact of interest-rate hikes intended to stem a-once-in-a-generation inflation shock. 

After enduring a winter recession brought on by Russia’s war in Ukraine, German output failed to expand in the second quarter and will probably also stall in the third, though a fresh forecast from the Kiel Institute casts doubt on that and instead predicts a 0.3% slump.

The institute also lowered its outlook for this year and next, anticipating a contraction of 0.5% and followed by a weaker rebound in 2024. 

With the economy effective stagnating and inflation hurting voters, Chancellor Olaf Scholz is struggling to contain the far-right Alternative for Germany in opinion polls. It now attracts the second-highest support of any political party. 

On Wednesday, Scholz unleashed a blistering attack on the AfD, calling the anti-immigrant group a “demolition squad” and a threat to the economy, saying its policies represent “nothing but wanton destruction of prosperity.”

Sick Man Image

Germany’s poor economic prospects have revived the “sick man of Europe” tag assigned to country in the aftermath of its reunification in 1990, when it also underperformed its peers. 

Asked about that moniker, Bundesbank President Joachim Nagel acknowledged that the current situation isn’t great.

“It’s true that we slipped into a technical recession in the winter half-year and that economic development since then hasn’t been satisfactory,” he told Handelsblatt newspaper in an interview published Tuesday night. “But: We expect the picture to brighten again.”

He pointed to the strength of the labor market, saying that it’s in a much better condition than in the 1990s. That makes comparisons with that period flawed. 

“Germany isn’t the sick man of Europe,” he said. “I think that’s a misdiagnosis” and “we should be more self-confident.”

That plea is unlikely to get much traction this week: German manufacturing data due for release Thursday may also show ongoing weakness, with the median economist estimate predicting a third consecutive monthly contraction.

–With assistance from Joel Rinneby, Kristian Siedenburg and Arne Delfs.

(Updates with Scholz in seventh paragraph)

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