Quieter factories fuel fears of recession in Germany

A sharp fall in orders placed with German factories during April－the third such monthly drop－sent shivers through Europe's financial markets on Tuesday, as investors grappled with the prospect of a possible recession.

With Germany's manufacturing sector the main driver of Europe's economy, falls in factory orders always cause concern, but unexpectedly large and sudden ones are especially worrying.

The 2.7 percent fall in factory orders during April, revealed on Tuesday, followed a 4.7 percent drop in March and a 0.8 percent reduction in February. Economists had expected order levels during April to remain similar to those from March, so the decline was especially disappointing.

The fall in factory orders was particularly pronounced for capital goods used in production, which plunged by 4.3 percent in comparison to March. In addition, Germany's flagship auto industry had 8.6 percent fewer orders during April than in March.

Overall, April was not only down on the March total, but was also 6.2 percent lower than the level in April 2021.

Economists blamed the poor performance on issues including the Russia-Ukraine conflict, the high cost of energy, and supply chain disruptions.

Germany's statistics office Destatis said the increased uncertainty caused by the Russian-Ukraine conflict continues to lead to weak demand, especially from abroad. "However, companies still have well-filled order books," it said.

The Guardian quoted Naeem Aslam from capital market company AvaTrade as saying "economic conditions are becoming dire" within the eurozone's largest economy.

The financial platform and news website Investing.com said Germany now looks set for at least one-quarter of economic contraction.

Manufacturers are also feeling the squeeze from both sides because, in addition to buyers keeping their hands in their pockets, producer price inflation in Germany, which is running at an annual rate of 33.5 percent, is making the production process much more expensive.

Modest increase

German factory output increased modestly in April, figures published on Wednesday showed. Production was up 0.7 percent on the previous month, according to the federal statistics agency Destatis, having registered a sharp 3.7 percent drop in March. Output fell by 2.2 percent in April compared to the same month last year.

Deutsche Bundesbank, Germany's central bank, said in May that second-quarter output in Europe's largest economy will rise "slightly at best".

The German government said in late April it expects economic growth this year to run at 2.2 percent, down from the previous estimate of 3.6 percent.

Additionally, a report released by the German Machinery Industry Trade Association showed machinery orders were down 7 percent during April, which is another indicator of a quickly slowing economy.

But Agence France-Presse said business confidence has improved slightly in Germany recently, as signs have emerged that the nation may avoid a full recession.

Agencies contributed to this story.