News Analysis: German economy still in trouble despite rebound of manufacturing orders

FRANKFURT, Aug. 7 (Xinhua) — The manufacturing industry in Germany recorded a surprise growth in the volume of new orders in June while other indicators remained mixed, indicating a fragile recovery of the economy.
Real (price-adjusted) new orders in manufacturing in June were 3.9 percent higher than in May, according to provisional figures released on Tuesday by the Federal Statistical Office. Previously, new orders had declined for five months in a row.
At the same time, new orders in manufacturing in the second quarter of this year were 1.4 percent lower than in the first quarter.
The automotive industry orders recorded the biggest monthly growth of 9.3 percent from May to June.
Industrial production increased by 1.4 percent in June month on month. The biggest growth – 7.5 percent – was once again recorded in the automotive industry compared to the figure in May.
However, analysts have cautioned against reading too much into the improved June statistics, saying it remains early to predict an economic turnaround on the horizon after recessions in the past two years.
The increase should not be “overestimated” and “only signals bottoming out,” said Joerg Kraemer, the chief economist of Commerzbank. Describing the increase as a “positive surprise,” Kraemer noted that the June reading was just a “countermovement to the sharp drops in orders in May.”
Other indicators depict a grimmer picture for the German economy, which was the worst performer among major European Union economies in 2023.
A survey from the ifo Institute for Economic Research published on Wednesday showed that a steady decline in orders has been a key factor impeding the German economy.
A growing number of companies involved in the survey conducted by the ifo Institute for Economic Research, a Munich-based economic think-tank, reported a lack of new orders in July. In the manufacturing industry, 43.6 percent of the respondents confirmed the lack of new orders, as opposed to 39.5 percent in June.
“Almost every industry is affected,” said Klaus Wohlrabe, deputy director of the Center for Macroeconomics and Surveys at ifo.
Another survey released by ifo on Monday showed that the sentiment in the German automotive industry darkened further in July.
On top of these, the Purchasing Managers’ Index in Germany has fallen to 43.20 points in July from 43.50 points in June. “All of this puts a big question mark over a sizeable economic recovery in the second half of the year, which many economists still expect,” said Kraemer.
The central bank of Germany, Bundesbank, struck a more positive tone in its forecast for the German economy, which it believes is “slowly regaining its footing.”
In a report published in June, the Bundesbank expected private consumption to pick up gradually and exports to improve in the second half of the year.
Germany’s economy has fallen behind other European countries according to the second quarter figures, which compared to the first quarter recorded a GDP growth of minus 0.1 percent, while the French GDP grew by 0.3 percent, Italy’s 0.2 percent and Spain’s also up by 0.8 percent.
The weakness of the German economy can be blamed on temporary headwinds such as sticky inflation, but the country will have to address some fundamental problems to improve its growth prospects, according to an IMF report.
While the Harmonised Index of Consumer Prices in Germany is expected to decline from 6 percent in 2023 to 2.8 percent this year. Inflation is stubborn especially when wage growth remains strong in the country, said a Bundesbank report.
But the temporary headwinds will ebb eventually if Germany can remove the obstacles currently holding back public investment and productivity, the IMF report suggested. ■