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Recession fears in Germany as factory sales slump continues

The slump affecting the German manufacturing sector has continued this year with new figures from Destatis revealing a 6.7% year-on-year sales drop compared to August 2018, marking nearly two years of continuous decline. 

Factory orders dropped 0.6% compared to July, twice the shrinkage predicted by economists, albeit an improved performance on the previous month’s 2.1% fall. 

The primary driver of the drop in orders was from domestic buyers, however, suggesting the risk of recession in the EU’s largest economy. 

The US-China trade war, eurozone slowdown and domestic economic issues have all been cited as causes for the slump. 

Germany’s economy minister commented that: “The weakness in demand in the industry continues. The industrial sector remains subdued for the time being.”

However, some experts believe that digging further into the data, positive signs are there and the manufacturing slump may be bottoming out. 

Read more: UK carmakers warn of £50k a minute hard-Brexit bill as Germany reiterates desire for agreement

Chief German economist at Oxford Economics, Oliver Rakau, commented that: “For one, orders are holding up better than gloomy surveys have predicted and it looks like annual growth is bottoming out. 

“The current dynamics look a bit similar to 2012 when the euro crisis and the associated large tail risks weighed heavily on firm sentiment. 

“Car sector orders also continue to outpace weak production with a further improvement signalled by the already released VDA data for September.

“No fast bounce, but a moderate turnaround looks likely.”

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Post-referendum investment drop costs UK economy £20bn

A drop in business investments since the EU referendum three years ago has cost the UK economy £20bn, according to new research. 

Findings published in the National Bureau of Economic Research has found that Brexit has resulted in a 11% drop in investment whilst also claiming that productivity has taken a 5% hit as a result of the Brexit process as well. 

The report suggests Brexit has proved a distraction amongst management within UK businesses, somewhat explaining the productivity slide, with 40% of UK firms ranking Brexit amongst their three top sources of uncertainty. 

The paper noted that: “Brexit is unusual in that it generated persistent uncertainty – three years after the original vote, the UK had not left the EU, there was still no clarity on the eventual outcomes, and our survey results show that there was substantial unresolved uncertainty.

The research noted that firms most exposed to a hard exit from the single market and customs union – those with close trading ties and reliance on EU   – had seen the most significant falls in investment levels. The level of investment drop-off was also seen to fluctuate, particularly immediately after the referendum and this year as the previous March 29th Brexit deadline day approached. 

“The huge uncertainty surrounding the process and its persistent nature may have led firms to act cautiously and not cut investment as quickly as might have been expected.”

Not too late to plan for Brexit

The ‘next’ Brexit deadline of 31st October is now a matter of weeks away. Whilst the majority of large organisations have planned in advance, investing millions into moving assets and stockpiling essential supplies, many smaller businesses, in particular, are still massively underprepared and essentially ‘hoping for the best’. 

Read more: £10 million Brexit readiness boost for UK businesses

It’s essential for all businesses who rely on EU trade, travel regularly into the EU or receive data from the continent understand how leaving the EU, either with or without a deal for a transition period, will affect their business operations. 

Learn more about how Go Exporting’s Brexit audit and consultancy can help your business analyse and assess potential threats and create contingency planning for whatever the eventuality of Brexit might be.

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