German plant and machinery orders for February were reported yesterday and the number confirms our negative outlook on Europe’s largest economy.
Orders fell -49% Y/Y, a sequential decline from the -42% reported in January on an annual basis. For the export-dependent economy (last year exports accounted for 47.2% of GDP), plant and machinery orders are a critical metric and this decline adds to the bearish fundamentals we’re tracking.
Unemployment in March rose to 8.1%, up 0.1% from February; inflation slowed to 0.6% last month (from 1.2% in February) and consumer confidence is ticking downward sequentially M/M. We’re certain that Chancellor Merkel will be called to answer at the G20 meetings the status of the recovery for the Euro Zone’s largest economy.
Domestically Merkel and Co. are wrestling with the government’s purchase of a 8.7% stake in Hypo Real Estate and the outlook for German carmaker Opel, which GM is prepared to give up, yet neither Merkel nor a private buyer have come forward to foot the price tag. In the balance hangs upwards of 25,000 German jobs. Both decisions will weigh heavily on Merkel’s political prospects as she contends against Foreign Minister Frank-Walter Steinmeier for the Chancellorship in September.
In the meantime, a broken buck will give the Euro a reflation bid – one that German exporters can’t afford to see…