“Ripples are now spreading to other key markets.”
It hasn’t hit overall German exports yet. Year-to-date through August, total exports are up 6.6% from last year and are expected to set another record by year-end. Exuberance in Germany’s well-oiled export machinery still reigns.
But beneath the surface, German plant and machinery makers are getting slammed by the recessions in Russia and Brazil, the slowdown in China that officially still doesn’t exist, and the “turbulence” in the global markets, according to a report today by the German Engineering Federation VDMA.
The association represents over 3,100 mostly medium-sized companies in the capital goods industry. Mechanical engineering is Germany’s forte. Many of the companies are world leaders. They cover the “entire process chain” in the mechanical engineering sector, according to the VDMA, including:
Associated tools and components, of process, production, manufacturing, drive-train and automation engineering, office and information technology, software, and product-related services, i.e. from components to plants, from system suppliers and system integrators through to service providers.
They employ over 1 million workers that develop and produce “key technologies for the global market,” with 76% of their revenues derived from exports. Alas, about 42% of these exports are headed to developing economies, including Russia, Brazil, and particularly China.
These economies are now in trouble. And for German plant and equipment makers, things have come unglued. In September, total orders plunged 13% year-over-year. While domestic business edged up 1%, export orders plummeted 18%.
The export crash wasn’t a one-month blip. For the first nine months, overall orders dropped 1%. While domestic orders rose 2%, and export orders from the Eurozone jumped 13%, orders from outside the Eurozone dropped 7%. Hidden in the numbers is the recent deterioration in export orders: Over the three-month period between July and September (as domestic orders rose 8%), total export orders fell 6%, topped off by the 18% plunge in September.
“Mechanical engineering business has become more downbeat again over the course of the year,” explained VDMA chief economist Ralph Wiechers. He blamed “turbulence in China in particular” But “the ripples are now spreading to other key markets.”
This spreading “turbulence in the global markets” is now hitting the mechanical engineering sector, he added. It was “symptomatic for the for the last few months.” And that deterioration wasn’t just in the numbers, he said. It’s now also pressuring the sector’s mood, which has become “clouded over.”
So far, the plunge in exports to developing markets has been “offset” by rising orders from the “traditional industrialized nations,” he said. So now the hope is that growth in these industrialized nations will somehow continue despite the turbulence in the global markets, the recessions in Russia and Brazil, and the slowdown in China, whose imports are going through a process much worse than a hard landing – they’re crashing.
After having already reduced its growth forecast in the summer to 0% for 2015, the VDMA now sees “a continuation of the stagnation” for 2016.
Perhaps unwittingly, he expressed the hope of many: that the “turbulence in the global markets,” the recessions in some of the largest developing economies, the deterioration in China, and the lethargic economy in the US won’t lead to anything even worse than, as he said, “a continuation of the stagnation.”
But China may be having even bigger problems. Suddenly demand for diesel, gasoline, and jet fuel is shrinking. Read… China’s Economy Even Worse than Suspected?
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I recall an interview with Hugh Hendry a number of years back where he said (regarding China) “wise men do not invest in overcapacity.”
More and more, I think the cheap/free money policies create artificial demand which in turn leads to expansion in production capacity. This has been going on across the entire economy. The signal to expand is false, the growth isn’t organic, and it can’t sustain itself.
How does one allocate capital at zero rates? They have completely destroying the pricing signals in the market. That is what we are seeing now. And more free money isn’t going to fix anything – it will just make it worse.
It’s going to be a hard landing for all …
Regards,
Cooter
Exporting economies like Germany and China are as healthy as the countries they export to.
Not a good thing in today’s world.
Yup! I like to joke one can open a bar and have amazing sales if you don’t collect on the tabs. That is problem with our global economy these days – everything is denominated in debt based fiat. The system can be grossly out of balance and things lumber on anyway.
IIRC, the US was quite the exporter in the 20s after Europe spent some number of years burning their collective houses down.
We can say it won’t go on forever, and it won’t, but I have long since given up trying to call it as I have been wrong for years. I am amazed it has held up this long since 2007/8. Maybe next year, maybe ten. Who knows!
Regards,
Cooter
I just hope this casino game goes forever, because it could only end with default of all countries, currency devaluation and third world war.
We may soon get to see what happens when a central bank runs out of road on which they can kick the can farther down.
http://www.bloomberg.com/news/articles/2015-10-19/china-finding-more-discreet-ways-to-support-the-yuan-in-forwards
Stock market squeezing higher today……….No evidence of any reality there.
Doesn’t matter. Dow 30000 here we come.
While the bad news keeps coming, it is also what squashes any realistic possibility of an interest rate increase by the Fed; the GDP came in at nearly 2 percent and the “labor market” has the appearance of steadiness – assuming lots of waiter and bartender jobs are ‘steady’.
Why have anything like a crash or a real recovery when a perpetual state of economic anemia has maintained the status quo for years now?
And as it will continue to do.
This economy sucks.
At this point I am convinced that any rate increase will be caused by the market or the FED reacting to de-dollarization events. They will not willingly pop the bubble they have created.
Cooter, I think you’re Crazy like a fox. You’ve nailed it again. What was that line during the 1980 election cycle, It’s the economy, stupid? Seems it still is.
Beautiful morning here in Beckley WV did some Xmas shopping at Tamarack here bought some Fiesta ware place settings for my daughter in law. Stole them, actually as they were reduced 50% from the normal price. They still make them here in West Virginia. I wonder how much longer that will last. A lot of individual craft makers here. Everything from furniture to shoes. All out of my league, unfortunately. But they make some beautiful things.
No doubt Germany and China will face extreme economic stress when the US economy, so laden with $18.5 trillion debts, implodes. But they will survive.