By Joshua Gallu and Gabi Thesing
Dec. 5 (Bloomberg) -- Manufacturing orders in Germany slumped more than economists expected in October as European demand for plant and machinery collapsed.
Orders, adjusted for seasonal swings and inflation, fell 6.1 percent from September, when they dropped 8.3 percent, the Economy Ministry in Berlin said today. Economists expected a decline of 0.5 percent, the median of 39 forecasts in a Bloomberg News survey showed. It’s the tenth decline in the past 11 months. Bonds rose and the euro dropped.
Manufacturers are cutting output and spending as financial market turmoil pushes up borrowing costs and stalling global growth erodes demand. Europe, Germany’s biggest export market, falls deeper into recession, companies like truck maker MAN AG and chemical maker BASF SE are reining in production. The Bundesbank today forecast the deepest German recession in 16 years for 2009.
“Germany’s industry is drowning,” said Carsten Brzeski, an economist at ING Group in Brussels. “November is unlikely to be any better because no matter how good German products are, if people don’t want to buy, they don’t want to buy. It’s not going to get better any time soon.”
From a year earlier, orders fell 17.3 percent. Foreign demand declined 6.2 percent in the month, today’s report showed, while domestic orders slid 6.1 percent. Euro-area orders slid 7.4 percent, led by an 11.2 percent drop for plant and machinery.
Global Action
Governments and central banks around the world are boosting spending and lowering borrowing costs as the biggest economies slide into the first simultaneous recession since the Second World War. The U.S. economy, the world’s largest, entered a recession a year ago, the panel that dates American business cycles said on Dec. 1, already making the contraction the longest since 1982.
Audi AG, the luxury-car brand of Volkswagen AG, said on Dec. 2 that U.S. sales fell 25 percent last month as the shrinking economy discouraged consumers from making big purchases.
The European Central Bank yesterday delivered the biggest rate cut in its 10-year history, reducing the benchmark rate by 75 basis points to 2.5 percent. That’s the lowest rate since May 2006. The Bank of England cut its key rate by a 100 basis points to 2 percent, after lopping 150 points off that rate last month. The U.K. is the third largest destination for German exports.
“Global and euro-area demand are likely to be damped for a protracted period of time,” ECB President Trichet said at a press conference in Brussels yesterday.
European Contraction
The economy of the 15 euro nations, which buy over 40 percent of Germany’s exports, will probably shrink 0.5 percent next year after growing percent in 2008, ECB staff forecasts showed.
“Leading indicators for German trading partners are in a free fall,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “The biggest problems may still be ahead. We’ve seen orders weakening, and if they don’t pick up, the downturn will either sharpen or last longer.”
The 3.75 percent bond due January 2019 rose 0.53, or 5.3 euros per 1,000-euro ($1,271) face amount, to 106.13 by 11:08 a.m. in London. The euro extended its decline to as low as $1.2708 from $1.2763 before German orders figures were released.
European manufacturing contracted by the most on record last month and German business confidence fell to the lowest level in almost 16 years.
ECB Efforts
The ECB’s rate cut “probably won’t help much in the short term, but may lead to a stabilization in the medium term,” said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. “Basic goods and consumer goods are still developing weakly” and the outlook for the auto industry has deteriorated.
MAN, Europe’s third-largest truck maker, will cut production of commercial vehicles next year and shut plants for as many as 50 working days during the first half of next year. The Munich-based company said Dec. 3 it is bracing for a “very difficult” 2009.
Still, European governments are coordinating a spending plan to cushion their 27-nation economy from the effects of the global recession. German lawmakers today backed a stimulus plan that aims to unlock 50 billion euros ($64 billion) of investment.
Even so, “the continuing adverse factors going into next year are to be rated as severe,” causing the economy to contract 0.8 percent next year, the most since 1993, the Bundesbank said today.
To contact the reporter on this story: Joshua Gallu in Zurich jgallu@bloomberg.net
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