German industry recorded a surprisingly large increase in orders in December. Aircraft orders in particular save the overall balance, which would otherwise have been weak.
In December, German industry surprisingly recorded the strongest increase in orders in around three and a half years. New business increased by 8.9 percent compared to the previous month, as the Federal Statistical Office announced. Economists had not expected such a positive development. Many expected stagnation or even a decline.
Domestic orders rose by 9.4 percent in December compared to the previous month. Foreign demand increased by 8.5 percent. The strongest increase since June 2020 can be attributed to an unusually large number of large orders in a number of industries.
“In particular, an exceptional number of aircraft were ordered,” said the Federal Statistical Office. In the area of other vehicle construction (aircraft, ships, trains, etc.), incoming orders in December were more than twice as high (plus 110.9 percent) as in the previous month. Without these effects, orders would have fallen by 2.2 percent.
Sharp decline in car manufacturing
Once again, incoming orders were “strongly influenced by fluctuations in large orders,” said the Federal Ministry of Economics regarding the data. “Other vehicle construction and electrical equipment in particular recorded strong growth.” There were also increases in metal producing companies and in the pharmaceutical industry. However, the areas of motor vehicles and vehicle parts, mechanical engineering and chemical products reported declines, according to the ministry.
The decline in the “important area of motor vehicles/motor vehicle parts” was almost 15 percent month-on-month in December. This means that the decline in one of the most important areas of German industry was significantly greater than in mechanical engineering and the chemical industry.
“No change for the better in sight”
Despite the large increase in orders, economists are mostly reacting cautiously to the data. They don’t see a turnaround: “Production is being kept afloat thanks to large orders,” said the chief economist at Hauck Aufhäuser Lamp Privatbank, Alexander Krüger. “The fact that there isn’t much going on without major orders underlines the underlying weakness of the industry.” ING chief economist Carsten Brzeski also advises taking the data “with a large pinch of salt, despite the initial enthusiasm”.
According to Commerzbank analyst Ralph Solveen, the order data, without taking large orders into account, shows “that a change for the better for German industry is not in sight.” Rather, it is to be feared that the German economy will continue to shrink at the beginning of the new year and that the entire year 2024 will ultimately be negative.
Persistent lack of orders
Looking at the fourth quarter of 2023, total incoming orders were only 0.1 percent higher than in the previous three months, despite the strong December. In 2023 as a whole, it was 5.9 percent lower than in 2022, because the weak global economy and high interest rates are putting a strain on demand for goods “Made in Germany”.
“If you look at the longer-term trend, the order situation in German industry has continued to decline over the last two years,” said Brzeski. “Many more positive data are needed to signal a significant recovery in the economy.”
The ifo Institute attests that the industry is experiencing a lack of orders, which is increasingly threatening to become a burden on the German economy. In January, 36.9 percent of industrial companies reported a lack of orders, as the Munich researchers found in their monthly survey.