German new orders in the manufacturing sector dropped unexpectedly at a sharp rate of 1.3 percent sequentially in November. Consensus expectations were for a rise of 0.2 percent. The figures are a disappointment, although the previous month was upwardly revised from -0.4 percent to 0.2 percent. Moreover, even after excluding the volatile “other vehicles” segment orders were able to only make good half of their slump in the prior month.
In the past 24 months, in spite of the disappointment in November, new orders have continued to move sideways since spring 2019. This stabilization is because of a recovery of foreign orders, which have more than compensated for the continued fall in domestic orders.
A similar scenario is delivered by survey-based leading indicators. Since autumn, the Ifo business climate and the PMI have rebounded slightly, although they do not yet hint at an upswing.
However, headwinds continue to be strong. On the contrary to the leading indicators, industrial production has dropped considerably until the very end. Thus, GDP is expected to have stagnated in the fourth quarter. However, the stabilization of leading indicators implies that the fall in industrial production will slowly end in the months ahead and that GDP will pick up slightly, noted Commerzbank in a research report.
“But for 2020 as a whole, we still expect only a 0.8 increase, which is a meager 0.4 percent if growth is adjusted – as is customary internationally – for the unusually high number of working days. Unlike after the Lehman uncertainty shock just over ten years ago, the German economy is facing strong headwinds this time” added Commerzbank.
