German Factory Orders Plummet as Manufacturers Under Siege

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German factory orders fell in November, a reminder that the country’s manufacturers are still struggling — even as the economic backdrop improves. 

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Demand declined 5.3% from the previous month, more than the 0.5% that analysts had predicted in a Bloomberg survey. The slump was driven by foreign orders, especially from the euro zone, and the drop was exacerbated by large-scale orders, the German statistics office said Friday. 

Surveys of purchasing managers by S&P Global this week showed that Germany’s manufacturing downturn is easing, though the data continued to point to a contraction. Demand is still being weighed down by uncertainty and high levels of inventory among customers. 

“Today’s figures show that the numerous negative factors affecting the economy are making themselves felt more and more in manufacturing,” said Ralph Solveen, an economist at Commerzbank. While many companies shut down production due to high energy bills, rising interest rates are also weighing on demand, he said. 

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And with the impact of central bank hikes still filtering through to the economy, orders will probably continue to fall in the coming months, according to Solveen. 

For now, production is still being supported by a large backlog of orders that manufacturers are working through. Revenue rose 2.1% in November over the previous month.

Separate data on German retail sales showed a 1.1% increase in November from a month earlier.

While Germany is now expected to escape a deep winter slump, inflation remains a thorny issue. Data for the euro area, due later Friday, are expected to show underlying price pressures remaining elevated even as the headline rate declines. That’s likely to see the European Central Bank press on with interest-rate hikes. 

The outlook is also clouded by the sudden reversal of Covid-19 restrictions in China — one of Germany’s top trading partners. Overall exports already fell 0.3% from the previous month in November, with those to China dropping 1.5%, data published Thursday showed. 

—With assistance from Joel Rinneby and Kristian Siedenburg.

(Updates with Commerzbank comment in fourth paragraph)