German manufacturing plunges as country risks deep recession #NewsGerman

Germany’s embattled manufacturing industry faces a fresh slump after new orders plunged by 7pc between December and January.

Machinery orders dropped more than 10pc on the month, while “other transport equipment” – the category including planes, ships, trains and military vehicles – plunged by almost 18pc. Consumer goods also slid 2pc.

It marks a dire start to the year for an economy which shrank by 0.2pc last year, and which is menaced by the prospect of 25pc tariffs on sales of its goods to customers in the US, representing another threat to its export-focused model. Factory orders are now 11pc lower than in January 2020, on the eve of the Covid lockdowns.

The depth of the crunch underlines the scale of the challenge facing Friedrich Merz, who is expected to be the new chancellor after last month’s election, as he seeks to revitalise both the nation’s economy and its defence capabilities.

Mr Merz hopes to shake the country out of its economic slump and geopolitical malaise at a critical moment. The economy is still reeling from the war in Ukraine which exposed its industry’s over-reliance on cheap energy from Russia, and is struggling to cope with the flood of cheap electric cars from China which undercut its own automotive industry.

At the same time, Donald Trump’s decision to slash support for Ukraine’s defence emphasises the need for Europe’s largest economy to step up its military capabilities and production to provide more of the continent’s security both immediately and in the years to come.

Mr Merz’s plans for €500bn (£420bn) of investment and extra borrowing for defence spending represents “a paradigm shift in German fiscal policy”, said Evelyn Herrmann, of the Bank of America, which “meaningfully changes the medium-term economic outlook”.

She said: “Germany was facing a potential growth trajectory heading towards zero over coming years.”

The country is now likely to achieve growth of 1.5-2pc by 2027, according to Ms Hermann, or possibly even higher if the extra money is spent efficiently.

However, in the short term there are also threats from the plan.

Financial markets have responded to the additional borrowing with higher interest rates, which have a knock-on effect for the private sector and for other countries, including the UK, potentially taking the edge off any growth boost.

At the same time the combination of action in Europe and turmoil from America have pushed the dollar down and the euro up, which threatens to harm Germany’s factories further by making their products relatively more expensive in world markets.

Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.