Good start to the new year for German new orders

Zig-zagging towards the industrial recovery? German new orders increased in January, confirming that the economy’s industrial backbone is further strengthening. New orders were up by 1.2% MoM, from an upwardly revised drop of 0.2% in December. On the year, new orders are up by more than 8%. 1.9%. The drop was broadly driven by weaker foreign and domestic demand. Both domestic and foreign orders increased in January. Within foreign orders, however, orders from other Eurozone countries had a relapse, dropping by almost 9% MoM. Despite the January increase in domestic orders, German manufacturing remains highly dependent on foreign orders. Over the entire year 2013, foreign orders were up by almost 4%, while domestic orders only increased by a meagre 0.5%. Earlier today, the German statistical agency released details of Q4 trade data. The details revealed interesting information. Particularly the French stagnation is leaving its marks on German exports. France is still Germany’s most important trading partner, but the gap vis-à-vis other countries is narrowing. In the fourth quarter, 9.1% of all German exports went to France, 8.2% to the US. Between 1999 and 2002, more than 11% of all German exports went to France. As regards the Eurozone rebalancing story, Germany’s trade surplus vis-à-vis the rest of the Eurozone shrank by 13% in 2013,, compared with 2012, and stood at 58.6bn euro (roughly 2.2% of German GDP). Returning to the latest figures, it is noteworthy that three out of the top 5 German export destinations are countries outside the Eurozone (US, UK and China). Looking ahead, the German export engine could stutter somewhat longer than expected. Concerns that spooked financial markets since the beginning of the year might have disappeared from markets’ radar screens but could leave some bruises on the German economy. Taken one-by-one, slowing emerging markets, Russia or the Ukraine are too small to matter for the economy. However, together with China, all these countries together account for around 15% of all German exports. It looks as if the basis for a strong pick-up in German exports is shrinking. All in all, today’s data send two important messages for the German growth outlook. The near term looks very rosy and industrial production should gain further momentum. To maintain this momentum into the longer term, however, the economy needs more domestic demand.