Global industry and trade in the doldrums

German manufacturing sector hit by weak demand

Orders and production data for April illustrate that Germany’s manufacturing sector is suffering further from weak demand. Manufacturing production grew modestly (0.1% mom) in April, after it contracted by 1.9% in March. However, renewed contractions in output look to be on the cards in the coming months, as factory orders fell by 0.4% mom in April, following a 10.9% mom drop in March. The orders series tends to be very volatile, and the fact that (in contrast to what was expected by us and the consensus) the drop in March was not followed by a rebound in April implies that there is quite some weakness under the surface. Indeed, the less volatile 3Mo3M change in orders fell to -2.3% in April, down from 0.0% in March.

The breakdown by region shows that domestic orders (-2.4% 3Mo3M) and foreign non-eurozone orders (-4.1%) were the weakest, while the breakdown by product group shows the weakness was concentrated in intermediate goods (-5.2% 3Mo3M) and consumer goods (-2.3%). In fact, the only component of orders that expanded in April on a 3Mo3M basis was capital goods orders from other eurozone countries. The drop in factory orders is in line with the low level of the new orders component of Germany’s manufacturing PMI, which hovered around 44 during January-April, and subsequently dropped to 39.1 in May. Also the relatively subdued level of the expectations component of the Ifo business climate in manufacturing (at 90.9 in May, versus a long-term average of 99) is consistent with the contraction in factory orders, boding ill for future production. All in all, the weak data is consistent with our expectation for a modest recession this year in the eurozone (see our May Global Monthly for more).

China's export weakness flags growth risks

China’s foreign trade data published this morning were a reminder of prevailing headwinds to Chinese and global growth. Chinese exports in May dropped by 4% in monthly terms, and by 7.5% in annual terms (April: +8.5%, consensus: -1.8%). Geographically, the weakness was broad-based, with export growth negative to almost all destinations (US -18.2% yoy, EU -7.0%). Meanwhile, Chinese imports picked up by 6.1% mom, with the annual contraction of -4.5% yoy coming in better than expected (April: -7.9%, consensus: -8.0%).

While China’s trade data can be notoriously volatile and are affected by seasonal distortions and price changes, the latest foreign trade data are in line with our view that the slowdown in global demand – partly reflecting the sharp monetary tightening in developed economies – remains a key headwind for the Chinese economy. It is also another signal of the current weakness in global trade and industry, where we see some bottoming out but deem a sharp rebound unlikely – also see our recent take on the global manufacturing PMIs and our May Global Monthly.