German Factory Orders Plunge Most Since 2012 As Economy Hits A Wall

Adding more fuel to the rapidly worsening outlook on the German economy, which economists at Deutsche Bank warned on Tuesday appeared to be drifting toward recession, German factory orders posted their biggest yoy slump since 2012 in December, extending a slump that began seven months ago.

December's 1.6% monthly drop was the steepest in six months, contributing to a staggering 7% drop yoy. This fed speculation that the German economy, seen as the growth engine of Europe, contracted in the final quarter of 2018. The latest downbeat print from Q4 suggests that growth may have turned negative in the closing months of last year. If the data bear this out, it would officially signal that Germany has entered recessionary territory. 

YoY

The biggest factor behind the slump was a drop-off in demand for investment goods from outside the eurozone. In one of the report's few bright spots, orders rose 0.3% in the fourth quarter, helped by demand for investment goods. Demand for German cars, which have adapted to new emissions standards, climbed 10.2%.

But overall, data released since the beginning of the year suggests the situation in Europe's largest economy has gone from bad to worse. A flash PMI reading published earlier this week showed German manufacturing activity contracted in January for the first time in four years. In a sign of just how quickly the outlook for the German economy is deteriorating, Bundesbank President Jens Weidmann said last week that he expects significantly slower growth in 2019 than he did only a few weeks ago as companies battle struggle with uncertainties related to the US-China trade war and Brexit.

As if Europe needed any more bad news, reports on Wednesday showed the European Commission slashed its growth forecasts for the Italian economy to just 0.2%. To sum up, if Mario Draghi needed an excuse to follow in Powell's footsteps, this is it.