In a blow to the “Germany has bottomed” narrative, factory orders for the world’s fourth largest economy unexpectedly contracted in October, falling 0.4% MoM versus estimates for a comparably sized rise, data out Thursday showed.
The problem: Tepid domestic demand for investment goods and lackluster appetite from abroad. The only saving grace was an 11.1% uptick in orders from the eurozone. Domestic orders fell by 3.2% compared to the previous month while incoming orders from the rest of the world dropped 4.1% compared to September.
At -5.5%, the YoY drop was worse than expected too. Consensus was looking for a -4.7% print.
Although the manufacturing PMI has moved higher for two consecutive months, it still suggests Germany is mired in a deep factory slump. New political pressure to increase spending notwithstanding, it seems unlikely that Berlin will loosen the purse strings, or at least not to the extent markets (and the ECB) would like to see.
It’s hard to see a light at the end of this tunnel in the absence of a definitive resolution to the Sino-US trade war.
It certainly doesn’t help that Donald Trump threatened Germany with trade measures this week citing the need for the country to fork over more money for the mutual defense. The US president struck a somewhat obstinate tone at the NATO meeting in London this week, although he did manage to make it through the pseudo-summit without causing an international incident, which is about all you can ask of him.
The US missed an opportunity to use the Commerce department’s 232 investigation as an excuse to slap tariffs on European autos, but there are rumors that a 301 probe is coming. And speaking of 301, the USTR this week decided that France’s digital tax is an affront to America’s dignity and warrants tariffs on $2.4 billion in French goods.
The point: Trump isn’t done with Europe, and German cars have always been in his crosshairs. It’s going to be quite a while before all of the clouds hanging over the German economy clear.