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Germany’s Manufacturing Slump Raises Winter Recession Fears

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Germany’s manufacturing sector continues to face significant challenges as factory activity levels in November fell sharply, heightening concerns about a potential winter recession. Data released by the Federal Statistical Office on Wednesday revealed a 5.4% decline in new orders from October to November, a drop valued at over €50 million. This marks the steepest fall since August 2024 and follows a smaller 1.5% decrease in the previous month.

The decline was driven largely by a staggering 58.4% plunge in orders for aircraft, trains, and ships, a stark contrast to the robust demand observed in October. Foreign demand also faltered, with orders from outside the eurozone falling significantly and demand within the eurozone dipping by 3.8%.

Broad-Based Declines in Key Sectors

Other sectors also faced setbacks, including a 1.2% decline in basic metals and a 7.2% drop in pharmaceuticals. Both consumer goods and capital goods showed weaker output, adding to the grim outlook. However, there were some bright spots: orders in the chemical industry increased by 1.7%, and machinery orders rose by 1.2%. Domestic orders also grew by 3.8%, and orders for the three months from September to November were 1.7% higher than the previous three months.

A Winter Recession Looming?

Germany’s broader economic struggles have persisted over recent months, with weak consumer sentiment and dampened demand weighing on growth. Whether the country officially enters a winter recession will depend heavily on its upcoming GDP reports, with the next figures scheduled for release on January 15.

Retail sales data adds to the bleak outlook. Month-on-month retail sales fell by 0.6% in November, a steeper decline than October’s 0.4% and well below analyst expectations of 0.5% growth. Non-food retail sales dropped by 1.8%, and mail order and e-commerce sales fell by 1.2%. However, food sector retail sales inched up by 0.1%, and year-on-year retail sales grew by 2.5% in November, surpassing both October’s 2.4% and market expectations of 1.9%.

Expert Perspectives

Carsten Brzeski, an economist at ING, commented: “There is still no trend reversal in sight for the German industry. It’s bottoming out at best. At the same time, disappointing retail sales suggest that the rebound in private consumption in the third quarter is unlikely to continue in the fourth quarter.” He added that unless Christmas shopping provides a significant boost, private consumption is expected to drop, with ongoing political uncertainty and rising inflation dampening hopes for a substantial recovery.

Germany’s economic trajectory remains precarious, and the coming months will be critical in determining whether Europe’s largest economy can avoid a prolonged downturn. (EuroNews)

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