In November, Germany experienced a significant decline in factory orders, largely attributed to a sharp decrease in demand for transport equipment. This trend indicates that the manufacturing sector is still mired in recession.
According to Destatis, new orders fell by 5.4% in November, worsening from a 1.5% decline in October and exceeding economists' predictions of a modest 0.3% drop. A similar decline was last observed in August.
The office identified that the primary cause for the reduction in orders was a substantial decrease in large-scale orders for transport equipment, which encompasses aircraft, ships, trains, and military vehicles. After significant growth in October, orders in this category plummeted by 58.4% in November.
However, excluding large-scale orders, new orders saw a slight increase of 0.2% compared to the previous month. Orders for intermediate goods rose by 1.8%, while demand for consumer goods and capital goods dropped by 7.1% and 9.4%, respectively. Although domestic orders grew by 3.8%, this increase was counterbalanced by a 10.8% decline in foreign orders. Specifically, orders from the euro area decreased by 3.8%, and those from outside the euro area fell by 14.8%.
Year-over-year, industrial orders decreased by 1.7%, contrasting with a 5.7% rise in October. Expectations had been for a 1.9% increase.
Data also revealed a rebound in manufacturing turnover in November, with real turnover rising by 1.4% month-over-month, reversing a revised 1.5% dip in October. However, on an annual basis, turnover was down by 2.3%.
The latest Purchasing Managers' survey indicated that Germany's manufacturing sector continued to contract in December, with accelerated declines in both output and new orders. The HCOB manufacturing PMI dropped from 43.0 in November to 42.5.
Additionally, Destatis noted that German retail sales rose in November as consumers took advantage of promotional offers during Black Friday to advance their Christmas shopping.
Retail sales were 2.5% higher than in November 2022, surpassing the anticipated 1.9% growth. Nonetheless, sales dropped by 0.6% month-on-month, contrary to expectations of a 0.5% increase.
Carsten Brzeski, an economist at ING, remarked that the current weak order books, coupled with persistently high inventories, do not augur well for industrial production in the coming months. He also suggested that the retail sales data imply that the recovery in private consumption seen in the third quarter is unlikely to persist into the fourth quarter.
Overall, the macroeconomic data underscores the fragility of the German economy in November, confirming predictions of a mild winter recession, according to Brzeski.
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