Recession fears in Germany as factory sales slump continues

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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. 

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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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