German industrial orders for December disappointed with a considerable fall of 2.1 percent. Even if the data at the turn of the year are always to be interpreted with caution, this considerable decline implies that industrial production is expected to fall again in the first quarter, especially as the outbreak of the coronavirus in China would possibly prove as an additional burden, noted Commerzbank in a research report.
The recent turnaround signals in confidence indicators had increased hopes of an end to the manufacturing downturn. Thus, the December figures for orders published today were a cold shower. On a sequential basis, orders fell 2.1 percent, as compared with consensus expectations of a rise of 0.6 percent. The fall is partially because of a considerable fall in orders in the “other vehicles” sector. Nevertheless, even after excluding this always very volatile sub-component orders still fell 1.4 percent.
The figures around the turn of the year should be interpreted with caution. Production and orders are greatly influenced by the timing of Christmas and the resulting length of the factory holidays, which is often not fully neutralized by the seasonal adjustment.
However, the trend for industrial production calculated by us on the basis of the latest figures continues to point clearly downwards. This suggests that, despite the recent improvement of business sentiment, production is likely to decline in Q1, especially as the negative impact of the outbreak of the coronavirus are reflected neither in today's order figures nor in the recent sentiment indicators. As a result, the mild weather and the resulting positive effect on construction investment remain the only hope for an increase in real GDP in Q1”, added Commerzbank.
