Recession fears mount as German factory orders plunge

German industrial orders fell more than expected in August, official data showed, adding to fears that Europe's largest economy will end the year in recession.

New orders, closely watched as an indicator of future business activity, plunged by 5.8 percent month-on-month, according to federal statistics agency Destatis, following an upwardly revised increase of 3.9 percent in July.

Analysts surveyed by financial data firm FactSet had been expecting a much smaller decline of 1.8 percent in August.

Excluding large orders, which can be volatile month to month, August orders would have been down 3.4 percent.

Rising energy costs

Germany's crucial manufacturing sector has been hit hard by higher energy costs in the wake of Russia's war in Ukraine and cooling demand from abroad, contributing to a wider downturn that saw the economy shrink in 2023.

With no signs of an imminent recovery, leading economic institutes have downgraded their forecasts in recent weeks and now see the German economy stagnating or slightly contracting again in 2024.

"Given the persistently weak demand and continued deterioration in corporate sentiment, a noticeable recovery in the industrial economy in the second half of 2024 is unlikely," the economy ministry said in a statement.

The ministry is due to unveil its own updated forecasts on Wednesday and, according to the Sueddeutsche Zeitung daily, plans to say it now expects output to shrink by 0.2 percent this year.

"The bad news just keeps coming," said LBBW economist Jens-Oliver Niklasch. "Everything feels like a recession."