Euro Macro: drop in German orders sign of slower global fixed investment growth – ABN

Senior economist, Aline Schuiling at ABN Amro, explained that the volume of orders for Germany’s manufacturing companies has dropped since the start of this year. 

Key Quotes:

"The weakness is concentrated in foreign orders for capital goods. Although these orders are notoriously volatile due to the impact of big-ticket items, the drop since the start of the year is too persistent and significant to blame normal patterns of volatility."

"Indeed, the yoy change in foreign capital goods orders turned negative in July (-5%) for the first time since early 2016."

"As Germany’s machinery goods industry is very export orientated, we have constructed a weighted average aggregate growth rate in global investment in machinery and equipment, in order to assess the relationship between changes in Germany’s capital goods orders and changes in global fixed investment."

"It turns out that changes in growth in Germany’s orders track global trends in fixed investment quite well and that changes in orders growth tend to lead changes in fixed investment growth."

"Looking forward, we expect this weighted average measure of aggregate investment growth to remain close to current levels during the rest of this year, but to slow down noticeably moving into 2019. It should ease from its current level of close to 6.5% yoy, to around 4.5% on average in 2019. Please read our publication “Drop in German orders sign of slower global fixed investment growth”."