Euro Macro: German factory orders resume their fall – The volume of orders received by Germany’s industrial sector shrank by 4% mom in June, more than erasing the 2.6% rise in May. Factory orders declined non-stop during the period January-April and the rebound in May was considered to be an early sign that Germany’s industrial sector had passed the worst and that production was stabilising. However, the new drop in orders in July, indicates that the weakness in production has continued moving into Q3. Besides the drop in orders in June, earlier published surveys for July had also signalled ongoing weakness in Germany’s manufacturing sector. The Ifo business climate indicator for the manufacturing sector declined in July and some details of Germany’s July manufacturing PMI also deteriorated, even though the overall manufacturing PMI rose. However, despite the fact that the assessment of new orders received improved in July, the assessment of the stock of finished goods rose more sharply, implying that the ratio between new orders and stocks in the PMI report fell, reaching its lowest level since November 2016.
The details of the orders report show that the weakness in June was concentrated in foreign orders from outside the eurozone, which fell by almost 6%, following upon a 1% decline in May. Orders from within the eurozone and domestic orders also declined in June (each by almost 3%), but they both had risen sharply in May and still were higher in the two months combined. Germany’s monthly trade data suggest that the weakness in exports and, therefore, industrial production, mainly stems from Asia, although we have to take the monthly trade data with a pinch of salt as they are volatile and also sensitive to changes in prices and exchange rates. (Aline Schuiling)