There are increasing signs of a sustained period of weakness in the German economy. Industrial orders collapse in October, and the budget crisis is also causing problems for companies.
New business in German industry shrank surprisingly sharply in October: by 3.7 percent compared to the previous month. The Federal Statistical Office announced this today. A number of experts had expected an improvement: Economists surveyed by the Reuters news agency expected growth of 0.2 percent.
Domestic orders from German industry rose by 2.4 percent in October compared to the previous month. However, foreign demand collapsed by 7.6 percent. Overall, incoming orders from August to October were 4.6 percent lower than in the previous three months.
The main reason for the negative development was a lack of major orders. If you exclude this component, there would be an increase in orders of 0.7 percent. There was order growth of 1.9 percent in August and 0.7 percent in September.
Mechanical engineering in crisis
A large part of the weak development can be attributed to mechanical engineering: In this important industry, orders fell by a total of 13.5 percent after increasing by 9.8 percent in September. Manufacturers of metal products, metal production and processing, electrical equipment and the automotive industry also received fewer orders. In contrast, new business in vehicle construction, which includes aircraft, ships and trains, grew by 20.2 percent. There were many large orders here.
Sales in the manufacturing sector also fell in October: they were 0.5 percent lower than in the previous month. In September there was a decline of 1.4 percent.
The outlook for the future currently looks bleak: “A sustainable recovery in the industrial economy is only expected next year,” explained the Federal Ministry of Economics regarding the negative development. Rising interest rates, high energy prices and the weak global economy are currently weighing on demand, which is why Germany is threatened with a recession. “The budget crisis, which is unsettling many companies, also suggests that the German economy will shrink to a certain extent in the winter months,” said Commerzbank chief economist Jörg Krämer.
The consequences of the Constitutional Court ruling
The Institute for Macroeconomics and Economic Research (IMK) also sees it that way. “The Constitutional Court ruling, combined with the federal government’s reaction, is a noticeable uncertainty shock for the German economy,” said IMK scientific director Sebastian Dullien.
“The German economy is not doing well,” the President of the Center for European Economic Research (ZEW) said last Monday. The budget crisis is “another sting, so to speak.”
With reference to the debt brake, the Federal Constitutional Court has decided that the 60 billion euros originally approved as a Corona loan may not be subsequently reallocated for investments in climate protection and the modernization of the economy. Many of the federal government’s projects are therefore open. It is still unclear how the billion-dollar hole in the budget will be closed.
economic slowdown dampens Electricity production
The weak economic situation is also reflected in electricity production: Due to the economic downturn, significantly less electricity was generated in Germany in the third quarter. From July to September, a total of 94.2 billion kilowatt hours were produced and fed into the grid. That was 20.3 percent less than in the same period last year, said the Federal Statistical Office. “The reasons for the decline are likely to have been lower electricity demand as a result of the economic slowdown in energy-intensive industries and the increased import of electricity from abroad,” it said.
Gross domestic product fell by 0.1 percent in the past quarter from July to September. If a further decline follows in the final quarter, experts speak of a technical recession, i.e. a decline in economic output in two quarters in a row.
However, the German economy is not expecting an upswing in the coming year either. Only 23 percent of companies have a positive outlook for 2024, while 35 percent have negative expectations, according to a survey by the employer-related German Economic Institute (IW Cologne). The economic survey thus signals “a continuation of the economic paralysis in Germany”.