German new orders drop in February

Unexpected disappointment. German new orders dropped unexpectedly in February, indicating that the Eurozone’s largest economy is still not an isolated economic island. New orders decreased by 0.9% MoM, from an upwardly revised -2.6% in January. On the year, new orders are now down by 1.3%. It is the first time new orders dropped in two consecutive months since June 2014. Interestingly, the drop was only driven by the lack of foreign demand. New orders from Eurozone peers dropped by 2.1% MoM, from -4.9% in January, showing that the positive mood in the rest of the Eurozone has not yet led to better hard data. To some extent, disappointing German new orders data tell more about the state of the Eurozone economy than about the German economy. The German industry has left the soft spell of last summer finally behind. Despite today’s drop, order books are filled again. However, compared with the start of last year, the industry is still treading water. In fact, new orders, both domestic and foreign, are currently only back at their respective levels from early 2014. Looking ahead, confidence indicators and order books send encouraging signals for growth of industrial production in the coming months. Only the fact that inventories have remained unchanged in recent months provides some note of caution. The most encouraging signal, for the German industry comes from the weaker euro. Judging from earlier episodes with similar exchange rate weakness, order books are currently only moderately filled. If past performances are any guide for the future, German exporters can start rubbing their hands. All in all, there is no need to worry. However, today’s drop in new orders shows that after a series of almost euphoric news and indicators from Germany and Eurozone, some caution is clearly justified.