German new orders disappoint in February

Lost in stagnation. German new orders dropped sharply in February, adding to evidence of continued stagnation in the German industry. New orders declined by 1.2% MoM, from an upwardly revised increase of 0.5% MoM in dropped in January. On the year, new orders were up by 0.5%. The last months have not been easy for the German industry. Since May last year, new orders have dropped in six out of ten months. Interestingly, the February drop was driven by falling foreign demand (-2.7% MoM), whole domestic demand picked up somewhat after a two-months slump. While the German industry is struggling to gain momentum, the Eurozone’s most favorite crisis is back. Leaked minutes from an internal IMF discussion and the arrival of Greece’s creditors in Athens is a good reminder that the Greek crisis could easily escalate again and lead to another hot Greek summer in the Eurozone. The discussion on new financing gaps, the lack of structural reforms and debt restructurings or forgiveness sounds too familiar. In Germany, politicians yesterday reacted with the typical reflex of “there is no need for debt forgiveness in Greece”. In our view, focusing only on a possible debt restructuring does not capture the entire problem. In the end, the lack of growth in Greece and other Eurozone countries could easily put new pressure on the German government to reassess its entire crisis management. Eventually it could come down to a decision between a growth stimulus for Greece, debt restructuring or Grexit. We don’t dare to tell which option the German government would choose. Against the background of potential new uncertainties, the outlook for the German industry remains anything but rosy. Product expectations have already come down significantly since the summer and are now at the lowest level since March 2013. At the same time, order books have narrowed. The only encouraging signal from the German industry is the latest drop in inventories since the beginning of the year. All in all, today’s new orders were another piece of evidence that the German industry is treading water, as it is suffering from a cooling of global activity.