German factory orders fall sharply in May, economy likely to have contracted slightly in Q2

German factory orders dropped sharply in May by 2.2 percent sequentially, thereby continuing with their downward trend. The decline was partially linked to a further considerable fall in orders in the “other vehicles” sector, which are always very volatile. However, even without this effect, there is a minus of 1.6 percent compared to April, which signifies that the downward trend of this core figure continues unabated, noted Commerzbank in a research report.

The main reason for the unfavourable development of orders continues to be the soft demand from abroad. The largest fall in the core figure came from outside the euro area. Nevertheless, soft foreign demand is increasingly impacting domestic demand for industrial goods as well. Even if the decline was smallest here in May, the trend is also clearly down. Today’s figures do not augur well for the short-term prospects for the German economy.

“The trend we calculate for industrial production on the basis of incoming orders continues to point clearly downwards and in May it is well below the April level of production. This supports our forecast that production continued to fall in May and there are no signs of a rapid turnaround in the coming months either. As a result, the German economy is not only likely to have shrunk slightly in the second quarter - as we have been expecting for some time - but the outlook for the third quarter is also becoming increasingly gloomy”, added Commerzbank.

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