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Ouch.

Germany’s industrial sector suffered a sharper than expected drop in orders in January dropping by 7.4 per cent – the worst month on month performance since 2009. Economists had expected a decline in orders of just 2.5 per cent after growth of 5.2 per cent in December.

The slump at the start of the year comes after German industry ended 2016 on a high, with the country’s economics ministry adding the soft January reading was a result of a robust end to the year. The monthly change in orders is traditionally volatile (see chart above).

Slowing domestic demand drove the drop in orders, falling by 10.5 per cent with foreign orders down 4.9 per cent and capital goods (durable products used in the manufacturing process) slumping 11 per cent.

On a year on year measure, industrial orders were still up more than 4 per cent compared to January 2016.

Despite the weak reading, survey data from the Germany economy has been broadly positive at the start of the year, with the country’s manufacturers reporting their best month since 2011 in February, according to a closely-watched business survey.

Like businesses in the rest of Europe, Germany has benefited from an upswing in the global economy in recent months, helped along by low interest rates and a softening exchange rate.

Carsten Brzeski at ING noted that the volatility in the monthly orders since the summer has been “almost unprecedented”.

“Today’s disappointing data is also a good reminder that the German industry is having more problems returning to full speed than buoyant sentiment indicators have been suggesting”, said Mr Brzeski.

Claus Vistesen at Pantheon called the February slump “horrible” but warned against reading too much into a single month’s reading, adding:

The crash in new orders is inconsistent with upbeat survey data, but we need to see more data and revisions to get a clearer picture. Our assumption remains that the German manufacturing sector is growing.

Copyright The Financial Times Limited 2017. All rights reserved.
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