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German Factory Orders Fall Sharply

James Boston
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German Factory Orders Fall Sharply

Confirmation of the weakness in the German industrial sector was presented this morning in the form of the Factory Orders data for the month of August. The latest data is showing a month on month contraction of -5.7% on a seasonally adjusted basis, this represents a sharp turn around from the revised July posting of 4.9% growth, markets we braced for a fall in orders but only of around 2.5%. This monthly reversal has taken the year on year figures into negative territory, on a non seasonally adjusted basis the reading of -1.3% is significantly below the revised July figure of 5.9%, the anticipated number today was for an expansionary 2.6%.

There is justifiable concern growing around the strength of recovery in the Eurozone’s number one economy, this is particularly in evidence in the industrial an manufacturing sector which is one of the key engines of the German economy. Germany has found itself facing into a number of headwinds over the past few months that have had a substantial impact on trade, exports fell by almost eight and a half percent during the month of August, this obvious fall off in trade has in turn impacted domestic confidence resulting in a two percent drop in domestic demand during the same period.

Geopolitical events, particularly the Ukrainian driven sanctions against Russia, are presenting a challenge for German exporters. Germany’s competitive advantage in industrial machinery production is proving to be a vulnerability in the current environment, the stalling of investment in manufacturing in some of Germany’s key export markets has led to a drying up of demand for such machinery. Trade in consumer goods is exhibiting some buoyancy which is supporting the German export numbers but this sector is offering its own challenges, with some exclusions there is a fall off in consumer demand across the Eurozone and Germany is somewhat fortunate that the Euro has devalued over the past two months as this provides a boost non Eurozone trade.

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