Tumbling German factory orders spur forecasters to slash growth outlook

GDP of Europe’s largest economy will expand by 0.8 per cent in 2019, down from 1.9 per cent Institutes predicted in September

German factory orders have plummeted. Reuters

German factory orders plunging the most in a decade in February, led by a drop in exports.

The data on Thursday showed orders fell 4.2 per cent in February from January, and 8.4 percent from a year earlier - the most since 2009.

The bad news from the Economy Ministry was followed just hours later by new forecasts for 2019 that predicted the weakest growth in six years.

Germany’s economy will grow by less than half the rate previously expected this year, and risks to the outlook include global trade disputes and a disorderly Brexit, according to the nation’s five leading research institutes.

The gross domestic product of Europe’s largest economy will expand by 0.8 per cent in 2019, the institutes predicted in their latest outlook published Thursday in Berlin. In September, they expected growth of 1.9 per cent, according to Bloomberg.

“The size of obstacles to domestic production and the scope of the slowdown in the global economy were underestimated,” the institutes wrote. The danger of a “pronounced recession” with several quarters of contraction is low as long as political risks do not intensify, they added.

Germany would be especially hard hit by an escalation of trade disputes and a disorderly Brexit as the US and Britain are two of its most important trading partners, the institutes said. Uncertainty about the Chinese economy is also a risk factor.

The 2019 forecast is in line with a prediction made last month by Germany’s Council of Economic Experts.

Germany's 10-year Bund yield was trading around zero per cent , flat on the day. It jumped five basis points the day before in its biggest one-day rise since mid-January, Reuters reported.

"We had argued that negative 10-year Bund yields could only be rationalised by extreme angst," said Benjamin Schroeder, ING's senior rates strategist. "Some of that angst has been lifted over the course of the past few days by a slew of positive headlines leaving the 10-year Bund yield around zero again."

The five institutes - IWH (Halle), DIW (Berlin), Ifo (Munich), IfW (Kiel) and RWI (Essen) - stuck to their German growth forecast for next year of 1.8 per cent.

The Economy Ministry added further gloom, saying that manufacturing momentum will “continue to be subdued in the coming months, particularly due to a lack of external demand”.

“Simply awful,” said Carsten Brzeski, chief economist at ING Germany. The “sharp drop in new orders clearly undermines latest tentative signs of a rebound in global activity in the first quarter.”

The big drag in February was exports, which fell 6 per cent. Trade tensions and Brexit woes are two factors likely behind the slump, while there’s also weaker demand, particularly in China, for cars and other German products.

All that is sapping the engine of growth, leaving Europe’s largest economy looking in poor shape so far this year.