The manufacturing sector experienced a sharp contraction in January 2025, with new orders plummeting by 7.0 percent month-over-month and 2.5 percent year-over-year. This downturn followed a substantially revised 5.9 percent monthly rise and minus 6.5 percent annual fall in December, highlighting the volatility in demand. Large-scale orders were pivotal in these fluctuations, with their exclusion revealing a more moderate 2.7 percent decline.

By sectors, the manufacture of machinery and equipment (minus 10.7 percent) and other transport equipment (minus 17.6 percent) bore the brunt of the slowdown, reversing gains from major orders in December. The computer, electronic, and optical products sector saw a 12.9 percent decline, further dampening overall performance. However, electrical equipment showed resilience, with orders rising by 4.8 percent, offering a glimmer of optimism.

Domestic demand collapsed (minus 13.2 percent), while foreign orders saw a milder 2.3 percent decline, suggesting weaker confidence within the local market. Capital goods orders fell by 11.0 percent, signalling potential caution in long-term investment.

Despite the downturn, turnover increased slightly (0.4 percent), reflecting delayed revenue recognition. The months ahead will determine if this contraction is temporary or a sign of deeper industrial strain, taking the RPI to minus 18 and the RPI-P to minus 21. This means that economic activities are now well behind market expectations of the German economy.

Orders expected to fall back by 0.9 percent after rising 6.9 percent in December.

Manufacturers orders are a leading indicator for industrial production. The figures are calculated every month by the Federal Statistical Office and represent the value of all orders for the delivery of self-made products confirmed by industrial enterprises with 50 or more employees in the respective reporting period. The results are broken down by both sector and region of origin (domestic and foreign split into euro area and non-euro area). Monthly volatility can be very high so moving averages give a much better guide to underlying trends.

Manufacturers orders data are keenly awaited by analysts each month. The data present a detailed breakdown by various sectors and a reading of the pulse of a major sector of the economy. Like the PPI, manufacturing orders data exclude construction, which is the preferred Eurostat measure.

The manufacturers orders data rank among the most important early indicators for monitoring and analyzing German economic wellbeing. Because these data are available for both foreign and domestic orders they are a good indication of the relative strength of the domestic and export economies. The results are compiled each month in the form of value indexes to measure the nominal development of demand and in the form of volume indexes to illustrate the price-adjusted development of demand. Unlike in the U.S., orders data are not collected for all manufacturing classifications - but only those parts in which the make-to-order production plays a prominent role. Not included are, for example, mining, quarrying and the food industry.