German factory orders slide by more than expected

Germany’s factory orders were weaker than expected in August, official data showed on Thursday, as the war in Ukraine continued to weigh heavily.

According to Destatis, the Federal Statistical Office, new orders in the manufacturing sector slid 2.4% on the previous month, and by 4.1% on August 2021. Analysts had been expecting a decline of around 0.7%.

In July, monthly orders rose by a revised 1.9% but fell 11% on an annual basis.

Destatis said that the sharp upwards revision for July – from a first estimate for a 1.1% decline – was related to large-scale orders in the aerospace sector, which were reported after the initial data were collated. Once large-scale orders were stripped, new orders rose by 0.8% in August.

Demand was weak across the board, however, with domestic orders down 3.4% and foreign orders off 1.7%. New orders from the Eurozone tumbled 3.8% while those from the rest of the world were 0.4% softer.

Destatis said 62% respondents reported issues with supply chain bottlenecks – caused by the war in Ukraine and Covid-19 – alongside problems procuring intermediate products and raw materials, citing a survey from the ifo Institute for Economic Research.

Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, said: “Demand for German manufacturing goods took a big step lower midway through the third quarter, but that was exclusively due to major orders.

“These data are notoriously volatile but a 3 percentage point adjustment [in July] is borderline ridiculous, as it completely re-writes the story fort the start of the third quarter.”

He added that volatility in the aerospace sector meant August’s headline details should be taken with “a pinch of salt”, although he also noted: “In any case, new orders in the domestic economy fell sharply, while export orders dipped, due primarily to a slide in new orders from other Eurozone countries.

“This shows that conditions closest to home are currently pulling demand lower, consistent with the shock to the German and Eurozone economy from Russia’s invasion of Ukraine.”

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “It is clear that consumers and companies are being ultra-careful, reining in their budgets and putting off purchases, given the turbulence in the energy market and the feared knock-on effect on the economy.”