Germany’s output slump deepens as energy costs rise

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New factory orders in Germany fell 4% in September from August, official data showed on Friday, as German and European industry struggles with rising energy prices and falling demand amid high inflation.

Incoming orders in the manufacturing sector in Germany adjusted for real prices fell by 4.0% in September 2022 compared to August 2022, according to preliminary figures from the Federal Statistical Office.

While domestic orders rose slightly by 0.5%, foreign orders fell by 7.0% in September compared to August. According to the Federal Statistical Office, incoming orders from the euro zone fell by 8.0% and those from other countries by 6.3%.

The downturn in German manufacturing deepened in October, according to the latest S&P Global/BME Germany Manufacturing PMI survey released earlier this week. Manufacturers in the survey reported the sharpest fall in production since May 2020 and a deepening contraction in new orders as conditions worsened amid growing concerns about the economic outlook and high energy costs.

“The start of the fourth quarter saw further downward pressure on production levels, with companies noting the impact of high energy costs and a deepening fall in demand,” said Phil Smith, economics associate director at S&P Global Market Intelligence.

The entire eurozone manufacturing sector has slipped into recession, with output falling at the sharpest rate since the first wave of COVID-19 as demand for goods fell sharply, the S&P Global Eurozone Manufacturing PMI survey also showed this week .

European industries are being hit so hard by rising energy costs that they are cutting back or shutting down production, losing global market share and permanently damaging Europe’s competitiveness. Rising natural gas and electricity costs have pushed up operating costs in every industry, from steel and automotive manufacturing to textiles and clothing. If manufacturers scale back, close or relocate production, they risk never reopening in Europe, undermining the EU’s competitiveness, including in sectors crucial to the energy transition such as metals.

By Tsvetana Paraskova for Oilprice.com

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