German industry got off to an unexpectedly weak start in the second quarter. This is sobering for economists in view of the further economic prospects.
Surprisingly, German industry once again had to accept falling orders in April. According to the Federal Statistical Office, orders fell by 0.4 percent compared to the previous month. Economists surveyed by the Reuters news agency had expected an increase of 3.0 percent. The decline follows a slump in March, which at 10.9 percent was even more pronounced than previously known and represented the largest drop in orders since the corona pandemic in April 2020. Orders received in April fell by 9.9 percent compared to the same month last year.
“Despite the slump in March, incoming orders did not recover in April, contrary to expectations,” commented Commerzbank chief economist Jörg Krämer. That is a bad signal. “The technical recession in the winter half-year was not a slip-up.” Together with the global interest rate hikes, there are many indications that the German economy will shrink again in the second half of the year.
No impetus for them industrial production
“The export-oriented German economy is suffering particularly from the still weak global economy and the decline in orders from the euro area,” said the Federal Ministry of Economics. Domestic demand, on the other hand, is relatively stable. “All in all, however, the weak incoming orders do not yet point to short-term growth impulses for industrial production.”
In detail, domestic demand rose by 1.6 percent in April compared to the previous month, while foreign demand fell by 1.8 percent. Capital and consumer goods were each ordered fewer than in the previous month. By contrast, orders for intermediate goods rose. Large orders in particular caused a burden. Without this volatile component, total orders would have increased by 1.4 percent.
Chief economist Alexander Krüger from Hauck Aufhäuser Lampe Privatbank called the weak start to the second quarter a huge disappointment. “This means that the economic feeling is becoming increasingly queasy.” In the industry, things continue to be anything but smooth. “In any case, the downward trend is intact, it has been going on for more than a year.” The phase of weakness in the USA will tend to reinforce this. There is still a backlog of orders, but also because of climate policy “the ride for the industry will remain a tough one”.
German service providers, on the other hand, with an increase in turnover
The German economy shrank at the end of 2022 and beginning of 2023 and is therefore in a technical recession. With the latest data, it is now becoming apparent that it will also shrink in the current second quarter, said analyst Jörg Angele from asset manager Bantleon. “Germany is thus still stuck in a recession, the end of which is not yet in sight.” Therefore, economic output should also drop noticeably in 2023 as a whole. “The hopes of an imminent upswing will not be fulfilled.”
However, the Ministry of Economics pointed out that the development was not weak in all areas. The areas of motor vehicles and motor vehicle parts as well as chemical products reported growth. On the other hand, there were declines in the areas of pharmaceutical products and mechanical engineering.
Meanwhile, the German service providers were able to increase their sales slightly. Revenues in March climbed inflation-adjusted (real) by 0.9 percent compared to the previous month, according to the Federal Statistical Office today. Compared to March 2022, there was an increase of 7.0 percent. The information and communication sector recorded the strongest increase in sales compared to the previous month with a plus of 2.8 percent, followed by the provision of other economic services such as the placement of workers with a plus of 1.5 percent.