Led by the auto industry, German industry has reduced its order backlog for the third time in a row. Despite a better supply of materials, the situation remains tricky.
The order cushion in German industry melted in May for the third month in a row. The order backlog in the manufacturing sector fell by 0.5 percent compared to the previous month, as announced by the Federal Statistical Office. While open domestic orders bucked the trend by 0.3 percent, those from abroad fell by 1.0 percent. Compared to the same month last year, the cushion decreased by 3.3 percent.
“The bacon belt is getting tighter again,” commented the chief economist at Hauck Aufhäuser Lampe Privatbank, Alexander Krüger. “The danger is increasing that further production will be shut down.” In addition to the weak global economy and rising interest rates, there were also competitive disadvantages due to high energy costs.
Orders in the automotive industry processed faster
The decline in May was mainly due to the development in the automotive industry: the order books of manufacturers of motor vehicles and motor vehicle parts fell by 2.6 percent compared to the previous month. The industry struggled with material shortages for a long time, for example in the case of semiconductors. With the better supply, the orders can now be processed more quickly, they are no longer backed up as much.
There was also a decline in mechanical engineering, but it was weaker at 0.5 percent, while manufacturers of metal products saw an increase of 2.1 percent.
The range of orders on hand also decreased in May: It is now 7.2 months after 7.3 in April. The range indicates how many months the companies would theoretically have to produce without new orders if the turnover remained the same in order to process the existing orders. For manufacturers of capital goods such as machines and vehicles, the range fell from 10.3 to 10.1 months. For producers of intermediate goods and consumer goods, it remained unchanged at 3.8 and 3.5 months respectively.
Situation in the industry still tense
Complaints from industrial companies about problems in procuring raw materials and preliminary products have decreased significantly in recent months. In June, 31.9 percent still reported bottlenecks, after 35.3 percent in May, as the ifo Institute found out in its company survey. This is the lowest value for more than two years, even if almost a third of the companies still complain about material shortages.
“Unfortunately, the relaxation can hardly counteract the downturn in industry,” said the head of the ifo surveys, Klaus Wohlrabe, on the development. “Orders can be processed faster, but too few new ones are coming in at the moment.” In May, the industry recorded the largest increase in orders for almost three years. However, the less fluctuating three-month comparison illustrates the continuing challenging situation: from March to May, orders were 6.1 percent lower than in the three months before.
The export-dependent industry is struggling with the worldwide rise in interest rates, with which central banks want to get inflation under control. This makes loans for German export hits such as vehicles and machines more expensive, which in turn puts pressure on demand.