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A surge in orders for cars and other vehicles boosted German manufacturers in May, but analysts warn that the sector remains under pressure from slowing domestic and global demand.
Manufacturing orders in the eurozone’s largest economy were up 6.4 per cent in May from a month earlier, data by the national statistics office Destatis showed on Thursday. The expansion was stronger than the 1.2 per cent forecast by economists polled by Reuters.
Growth in orders the previous month was also revised up to a 0.2 per cent expansion from preliminary estimates of a 0.4 per cent contraction and follows a 10.9 per cent plunge in March. Orders for new cars were up 8.6 per cent in May.
Christian Fuertjes, economist at HSBC, said that “today’s strong upside surprise was merely some kind of normalisation from an exceptionally weak level rather than a genuine turn of the tides with respect to the overall demand situation”.
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the result was “solid” but driven by one-off items, with vehicle orders for ships and trains rising by 137 per cent.
In contrast, orders for electrical equipment and consumer goods declined 15 per cent and 0.8 per cent respectively compared with April.
Vistesen expects new orders to decline 1.5 to 2 per cent in the three months to June compared with the previous quarter.
In the less volatile three-month comparison, incoming orders from March to May were 6.1 per cent lower than in the previous period. Monthly orders were also 4.3 per cent below the levels in May last year.
Strong demand for military equipment to boost Ukraine’s defence against Russian forces was also boosting orders, Fuertjes noted. However, he expects higher interest rates combined with still low real wages, as well as continued challenges in the transition from combustion engines to electric vehicles, to weigh on car production in the months ahead.
“The demand situation for the German industrial sector as a whole remains challenging,” he said.
German gross domestic product has contracted for the last two consecutive quarters, with output falling below the level in the first quarter of 2019.
In June, economists polled by Consensus Economics expected the German economy to contract 0.2 per cent this year, a downward revision from the marginal expansion forecast in the previous month.
Mateusz Urban, economist at Oxford Economics, has trimmed growth expectations for Germany this year. With “demand dragged down by a tightening of monetary policy — especially in the US”, he now expected industrial output in the eurozone’s biggest economy to keep shrinking until the first quarter of 2024.