German industrial slump stuns analysts

12th March 2009, Comments 0 comments

Industrial orders fell 8.0 percent from the previous month, according to an estimate from the economy ministry, accelerating from a downwardly revised 7.6 percent in December in one of the world's leading export economies.

Frankfurt -- German industrial orders collapsed in January, official figures showed on Wednesday, catching recession-hardened analysts off guard and yielding a bleak outlook for Europe's biggest economy.

Industrial orders fell 8.0 percent from the previous month, according to an estimate from the economy ministry, accelerating from a downwardly revised 7.6 percent in December in one of the world's leading export economies.

"The current hard industrial data confirm the absolutely ugly outlook for the German economy in the short term," UniCredit economist Alexander Koch said.

Economists had expected the downturn to ease, pencilling in a much more modest drop of 2.4 percent for January, but instead faced "one of the largest monthly drops ever recorded," according to Elga Bartsch at Morgan Stanley.

Koch noted that on a 12-month basis, orders had shed a massive 35 percent, which "needless to say is a new record rate of decline."

A ministry statement said: "The weaker trend resulted above all from a fall in foreign orders (minus 11.4 percent) and especially those from outside the eurozone," which lost a wholloping 18.2 percent.

This was particularly bad news for Germany, the world's leading exporter last year and a country that suffers from chronically weak domestic demand, although German orders resisted somewhat in January with a fall of 4.3 percent.

The uninterrupted declines meant the economy would contract further in the first quarter of 2009, Commerzbank economist Ralph Solveen said, and "increases the risk that a substantial minus will be recorded for the second quarter too."

Natixis economist Costa Brunner warned the slump had better "come as quickly as possible to a halt. Otherwise the German industry will have really severe problems, which could lead to unprecedented layoffs."

That was starkly illustrated when auto parts group Continental announced it was closing two European plants, including one in Germany because of a drop in demand for tyres.

Continental said a "steadfastly dire market trend" had lead to production overcapacity and added that the market would not recover fast enough to continue operating sites in northern France and northern Germany.

Almost 1,900 workers would be affected but "regrettably, there is no alternative," tyre division head Hans-Joachim Nikolin said.

Daimler, the world's leading maker of heavy trucks, added that it would lay off 18,000 workers at four Mercedes-Benz plants for several months, starting in April or May.

And the industrial conglomerate ThyssenKrupp said it had halted work on four container ships after clients said banks would not finance their purchase.

The German economy ministry said slumping demand for industrial goods was seen across all sectors, with a particularly heavy drop in capital and intermediate goods -- those used to produce finished goods and services.

The relentless fall in orders meant Germany's economy was unlikely to start pulling out of its worst recession in six decades.

Officials forecast the economy will contract at least 2.25 percent this year, while analysts believe it could be closer to 4.0 percent.

"A recovery is not to be expected until 2010," said Solveen at Commerzbank.

Morgan Stanley's Bartsch added that "right now, any meaningful recovery in the (16-nation) euro area still seems to be far away."

Bill Ickes/AFP/Expatica

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