Slumping factory orders inflict fresh damage on Germany's economy

In a bid to revitalise the economy, Chancellor Friedrich Merz has set his sights on boosting business activity in Germany. However, recent data from the federal statistics agency Destatis paints a different picture, as industrial orders unexpectedly fell by 2.9% in July compared to June.

This decline in new orders is a cause for concern, particularly given the long downturn that Germany's traditional growth engine, the eurozone, has been experiencing. Both domestic and foreign orders fell in Germany, with orders from the euro area down 3.8%.

The auto sector in Germany, traditionally a strong performer, experienced increases, but this was not enough to offset the overall decline. The July figure for orders of transport equipment such as aircraft, ships, and trains fell by nearly 40%, while there was a heavy drop for electrical equipment orders.

The ongoing trade and geopolitical uncertainties are contributing to the volatility in the German economy. The US President Donald Trump's tariff blitz is negatively impacting the export powerhouse of Germany, adding to the challenges faced by manufacturers in the country.

Manufacturers are also grappling with high energy costs and weak demand for their key exports. These factors have led some analysts, such as Jens-Oliver Niklasch of LBBW bank, to state that the economy has shifted back into reverse in Germany.

The ongoing economic woes have led leading economic institutes to downgrade their forecasts for this year, predicting only meagre growth in Germany. Early 2025 data had raised hopes of a rebound, but more recent data have poured cold water on these expectations.

Despite the overall downturn, there are signs of life in certain industrial segments. After excluding large orders, new orders experienced a 0.7% increase compared to the previous month in July 20XX. Pharmaceuticals and clothing also saw increases in Germany, according to Destatis.

In conclusion, Germany's industrial sector is facing significant challenges, with unexpected declines in new orders and ongoing trade and geopolitical uncertainties causing volatility. However, there are signs of life in certain segments, and the Chancellor's efforts to boost the economy remain ongoing.