German Factory Orders Slide 5.8% in August Highlighting Demand Woes

German Factory Orders Signal Demand Slump

On Monday, October 7, investor interest in the German economy intensified following September’s private sector PMI data.

Factory orders tumbled by 5.8% in August after surging by 3.9% in July. Economists expected factory orders to fall by 2% in August.

According to data from Destatis,

• Orders from outside the Euro area increased by 3.4%, while orders from the Euro area slid by 10.5%.
• New orders from the rest of the world (excluding Germany) fell by 2.2%, while domestic orders were down 10.9% in August.
• Excluding large-scale orders, new orders declined by 3.4%.
• In July, large-scale orders had surged by over 80%, skewing August’s headline figure.
• New orders, excluding large-scale orders, were up 0.7% from June 2024 to August 2024 compared with the three months prior.

Looking at the broader segments of Germany’s manufacturing sector:

• Orders across the capital goods sector declined by 8.6% in August, while the intermediate goods sector saw orders drop by 2.2%.
• Consumer goods producers reported a 0.9% fall in new orders.

Manufacturing Sector Woes Revive Recession Warnings

The sharp decline in factory orders aligned with Germany’s latest HCOB Manufacturing PMI data. The HCOB Manufacturing PMI slid from 42.4 in August to a 12-month low of 40.6 in September. New orders declined at the fastest pace since October 2023, with overseas orders also seeing a sharp decline.

Expert Views on Germany’s Manufacturing Sector Woes

Hamburg Commercial Bank Chief Economist Dr. Cyrus de la Rubia commented on the Manufacturing PMI data, stating,

“These figures are adding fuel to the debate around deindustrialization. With orders drying up at an alarming rate, it is hard to picture any kind of recovery happening soon. What is particularly troubling, looking back over the last 30 years, is how long this slump in export orders has dragged on – it is unprecedented. We attribute this to the “China shock”. Many companies, especially in the automotive and mechanical engineering sectors, have not yet found convincing answers to the sudden intensification of competition.”

Factory Orders and ECB Policy Expectations

Germany’s economic woes extend beyond the manufacturing sector. The HCOB Services PMI also strained, falling from 51.2 in August to 50.6 in September. A significant portion of Germany’s service providers work directly with manufacturers. As manufacturing sector demand weakens, manufacturers cut costs, impacting the services sector.

Considering Germany’s economic woes, the ECB could face increasing pressure to deliver multiple rate cuts in Q4 2024.

EUR/USD Reaction to the Factory Order Slide

Ahead of the factory order report, the EUR/USD dipped to a low of $1.09618 before climbing to a high of $1.09773.

However, following the factory order figures, the EUR/USD fell from $1.09689 to a low of $1.09631.

On Monday, the EUR/USD was down 0.05% to $1.09660.