German manufacturing sector ‘horror show’ gets worse

Jill Petzinger
Jill Petzinger, Germany Correspondent, Yahoo Finance UK
Containers from Maersk and Hapag-Lloyd in the freight yard of Berlin's Behala west harbour on 5 February. Photo: John Macdougall/AFP via Getty Images

Industrial orders in Europe’s largest economy were down by 2.1% in December, the biggest decline since February 2019 and the worst monthly performance since 2008 for the sector.

According to data released on Thursday by the federal economy ministry, new orders fell in eight out of the last 12 months, and manufacturing companies are facing a “subdued” outlook in 2020.

A combination of Brexit uncertainty and trade conflict hit the manufacturing industry, the backbone of the export-driven German economy.

Orders from abroad were down by 4.5% in December from the month before. Demand from Germany’s eurozone neighbours plunged by almost 14% in the last month of the year, from November. A 1.4% rise in domestic orders was not enough to offset the general drop.

“Chances of a quick bottoming out of the manufacturing slump are getting smaller,” said ING Germany economist Carsten Brzeski, who described the latest figures on the sector as a “horror show.”

“Instead of a turnaround, the drought in order books and the manufacturing slump is getting worse,” he said.

Brzeski notes that  2019 was not only the worst year for industrial orders since 2008, it was also the first time since 2002 that German order books shrank for two years in a row.

The coronavirus outbreak from China is expected to have a noticeable impact on the German economy in the coming months. German engineering companies and automotive manufacturers are highly dependent on China for orders. Most of them also have multiple factories or production bases in China.

On Thursday, Germany’s IfO (Institute for Economic research) said that if the coronavirus caused a drop of one percentage point in China’s economic growth, then Germany could expect a 0.06% contraction.

“We cannot make the short-term outlook for the German industry look any better than it currently is: dire,” said Brzeski in a note.