FRANKFURT, Germany – German manufacturing orders slumped unexpectedly in December, pulled down by a sharp drop in demand from outside the eurozone, heightening concerns that Europe’s largest economy may post another quarter of weak economic growth.
The country’s economics ministry said Wednesday that the “dry spell in German industry” appears to be continuing as forward-looking economic indicators also point to subdued industrial activity.
The remarks follow a set of disappointing economic data showing a 1.6 percent drop in German manufacturing orders in December 2018 from November, according to the statistics agency. Economists polled by The Wall Street Journal had expected a 0.3 percent rise.
Manufacturing orders were down 7 percent from December 2017, taking into account calendar effects.
“Today’s figures don’t bode well for industrial activity in Germany in the first quarter of this year,” according to Dirk Schumacher, an economist at Natixis.
Highlighting the sector’s struggle to recover its poise, the Ifo business climate index – the most prominent German sentiment indicator – fell to its lowest level in about three years in January. In manufacturing, the business climate deteriorated in all key sectors apart from chemicals.
Economists at Deutsche Bank now expect that the German economy contracted in the first quarter. “The much weaker than expected January business surveys and in particular the slump in their more forward-looking components are clearly pointing into this direction,” they said in a research note on Tuesday.
Germany is one of several large European economies that slowed last year and economists have already started to trim their German growth outlooks for 2019.
Yet most economists expect a pickup in economic growth in the course of the first quarter, led by catch-up effects in the automotive sector following months of severe delays in passing model types for compliance with new emissions standards.
Underpinning expectations of a recovery, demand for motor vehicles and parts rose in December, according to the statistics body. The office also revised its German manufacturing orders data for November to now show a more modest monthly drop in demand.
But foreign orders of German manufacturing goods remained weak. They dropped 2.3 percent in December from November – with a 5.5 percent decline in orders from outside the eurozone – indicating that the weaker global growth momentum, and in particular China’s slowing economy, is leaving its mark on Germany’s manufacturers.