German factory orders rebound below expectations in March, core orders fall

German factory orders fell 0.6 percent in March on a sequential basis, as compared to consensus expectations of a rise of 1.5 percent. Orders had fallen 4 percent in the prior month. However, the rebound is only linked to a clear rise in the volatile orders in the “other vehicle” sector. If these are excluded, the significant fall in orders continued in March. On a year-on-year basis, factory orders dropped 6 percent, as compared with consensus expectations of a fall of 6.2 percent.

The core figure, which excludes the sector, fell 2.1 percent, the third straight fall of about 2 percent. The continuing marking fall in the core size of incoming orders is hinting a further fall in production in the months ahead.

“In March our trend for industrial production, calculated on the basis of incoming orders in recent months, is about 2 percent below the production level in February, so that without a rapid turnaround in orders – which is not to be expected in view of the still poor mood among companies – a decline in production can also be expected for the second quarter”, said Commerzbank in a research report.

Therefore, the figures released today highlight again that German manufacturing is in a pronounced recession. For the whole economy as a whole, this is not the case yet, as the ECB’s very expansive monetary policy is stimulating domestic demand, which is why the service sector is still holding up well. The April service PMI was considerably higher than the average for 2018. Nevertheless, the longer the weak foreign trade environment pushes down manufacturing, the greater the risk that domestic demand and thus the service sector will also be impacted adversely.

“We assume that the Chinese government's stimulus measures will take effect in the further course of the year and that stronger demand from China will boost manufacturing worldwide. For the German economy, it is to be hoped that it will not take too long until then”, added Commerzbank.

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