German factory orders fell far more than forecast in May amid a steep drop-off in foreign demand in the latest sign of how the global trade slowdown has dealt a severe blow to the eurozone’s biggest economy.
Manufacturing orders dropped 2.2 per cent in May from the previous month, widely missing the estimate of economists polled by Reuters for a fall of 0.1 per cent. The figure was down 8.6 per cent from the same month in 2018, according to official data from the Federal Statistics Office.
Germany’s factory sector has been among the hardest hit by a sharp slowdown in global trade, stoked by the US-China trade war. It has also been affected by sluggish growth across some of its major trading partners, economists have said.
Foreign orders at German manufacturers slumped 4.3 per cent in May, on a month over month basis. Orders from the eurozone were off 1.7 per cent, with those outside the bloc tumbling 5.7 per cent. Domestic orders rose 0.7 per cent.
“Today’s figures do not bode well for the short-term prospects for the German economy,” said Ralph Solveen, economist at Commerzbank, who added that the report underlines “our expectation that the German economy shrank in the second quarter and that hopes of a noticeable improvement in the third are dwindling”.
Purchasing managers’ indices, which survey industry executives on their views of activity in the sector, have in recent months painted a bleak picture. However, these “hard data”, released by the German government, add further evidence to the case that German manufacturers are sputtering.
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said, “these data remain miserable”.
“Manufacturers have, at least according to the PMIs, been able to maintain production growth in excess of the flow of new orders recently by clearing work backlogs, but that can’t go on indefinitely.”
The weak data from Germany, considered the eurozone’s powerhouse economy, help explain why markets have increasingly priced in new easing measures from the European Central Bank. In fact, Germany’s Commerzbank said on Friday that it expects policymakers will cut the deposit rate to a historic low when they meet this month.
Growing expectations for further policy accommodation have fuelled a dramatic rally in the price of eurozone government debt, sending yields sinking. Germany’s 10-year Bund yield traded near historic lows of minus 0.4 per cent on Friday. The negative yield means that investors who purchase the Bunds — considered to be a regional haven — and hold them to maturity get back less in repayment and regular coupon payments than their initial investment.
In a sign of how far investor expectations have shifted, the market value of negative-yielding debt globally this week reached a record high of $13tn, according to data from Barclays. The figure represents a dramatic increase from $8.3tn at the end of last year.