German Manufacturing in Freefall

Financial Times today reports that German Manufacturing fell by 8 percent in January. The quarterly result for the last quarter of 2008 was the worst result since German reunification and the latest figure has sparked fears of a manufacturing industry in freefall. Industrial orders were down 37.9 percent in January. VDMA, the German engineering industry association, said this month that foreign orders in January were almost 50 per cent lower than a year earlier.

No wonder they don't want to bail us out .

johnfás wrote:

Financial Times today reports that German Manufacturing fell by 8 percent in January. The quarterly result for the last quarter of 2008 was the worst result since German reunification and the latest figure has sparked fears of a manufacturing industry in freefall. Industrial orders were down 37.9 percent in January. VDMA, the German engineering industry association, said this month that foreign orders in January were almost 50 per cent lower than a year earlier.

No wonder they don't want to bail us out .

It's their burst housing bubble that's causing the problems, serves them right.

This increases the likelyhood of financial easing in the Euro Zone by round about means. If the Euro rises against the dollar and sterling industry in Europe will suffer. Apart from that there is all the political tensions. Germany's interests are not that dissimilar to those of the PIIGS.

They'll have to start some kind of printing at some stage.

Is there internal demand though?

Japanese machine orders down too link (for fourth straight month) - don't the Germans export some high-end stuff to Japan?

They're stubborn with the QE so far though.

tonys wrote:

It's their burst housing bubble that's causing the problems, serves them right.

It's the combination of several housing busts at this stage (among other things) - the US, UK, here, Spain, Eastern Europe .. All together in the world they turn out to be systemic or too big to fail ...

Audi

Clever people are at this moment spending money on design and modernisation! If your finances can afford it, it is a wise investment. Implementation can be delayed if need be, but at least you are well positioned for any opening.

Fortune rewards the prepared.

Design and modernisation ... in what, Squire ?

Probably in everything. When industry shrinks like this, the scientists and engineers are hardly out of work - loads of them end up in R&D probably.

Are you saying there'll be a lull then great new light strong nifty stuff will suddenly appear out of the blue?

Auditor #9 wrote:

tonys wrote:

It's their burst housing bubble that's causing the problems, serves them right.

It's the combination of several housing busts at this stage (among other things) - the US, UK, here, Spain, Eastern Europe .. All together in the world they turn out to be systemic or too big to fail ...

Germany being the world's biggest exporter, and not having had a housing bubble, its our bubbles that have kicked off its problems.

http://business.timesonline.co.uk/tol/business/markets/china/article3767910.ece

Auditor #9 wrote:

Design and modernisation ... in what, Squire ?

Probably in everything. When industry shrinks like this, the scientists and engineers are hardly out of work - loads of them end up in R&D probably.

Are you saying there'll be a lull then great new light strong nifty stuff will suddenly appear out of the blue?

In the Great Depression car production took off. Rust bucket industry hasn't a chance in a slump. New stuff is always more profitable for a while.

On development you get your approvals, costings and tenders in place along with any agreements to buy land. That process could take a couple of years. It is really quite easy, you look for present and possible future need. The tricky bit is trying to anticipate future sales prices.

In general you buy up equipment that is being sold and nail everyone down. Cash is King and there are bargains to be had. I agree with Cactus new products will sell and I am convinced energy production is a sound mid term investment.

On farming, (which I confess to knowing little about, but that will change) we are looking at diversification into supplying for the Eastern market, sustainable timber production and feasibility of producing structural laminates or high end furniture. Also some local energy production for our own and perhaps local needs. Beyond that the cost of distribution would be prohibitive. The problem is local tax structures and reducing exposure. It is a tricky one, and a good example of how stupid tax structures and possible political instability deter investment.

cactus flower wrote:

Auditor #9 wrote:

tonys wrote:

It's their burst housing bubble that's causing the problems, serves them right.

It's the combination of several housing busts at this stage (among other things) - the US, UK, here, Spain, Eastern Europe .. All together in the world they turn out to be systemic or too big to fail ...

Germany being the world's biggest exporter, and not having had a housing bubble, its our bubbles that have kicked off its problems.

http://business.timesonline.co.uk/tol/business/markets/china/article3767910.ece

Sorry, fair enough so, I thought their world wide problems were the same as ours, coming from the US and oddly I thought their banking problems were caused by getting involved with the sub prime nonsense, again in the US.
It's hard to credit that the price of a 3 bed in Ireland could bring BMW to its knees, but if you say so, I'll believe you.

Quote :

bubbles

Not ours alone. What's bringing BMW to its knees is that people haven't the money or the confidence to buy a new car.

http://www.investopedia.com/articles/07/subprime-blame.asp
Good short article on sub prime here.

Ireland's particularly extreme situation is partly home grown by over-lending for property and gross fiscal irresponsibility as much or more than it is to do with US sub prime. Irish banks are said not to have much involvement with toxic assets.

This is a very clear short article on why the EU problems are much bigger than US subprime, with reference to Ireland. The assumption is there that Germany can and will bail out. That appears to be a hope not a certainty. The article was written before the impact of the slump on Germany had become clear.

http://finance.yahoo.com/tech-ticker/article/195065/Europe's-Crisis-Much-Bigger-Than-Subprime-Worse-Than-U.S.?tickers=ubs,cs,db,hbc

The crisis has come out of world problems, not just the US - the whole thing is an interlinked system. The causes go back to the 1970s and before that. The immediate impetus was the dot.com bubble and the response to it that was to flood the world with cheap credit, leaving the banks with the choice of low returns or high risks.

Some countries are being more damaged than others, for a variety reasons, of which poor governance is one.

Germany cannot bail anyone out, the Eurozone will have to print by one means or another. What is the alternative? If they don't they will go into a long period of deflation or political turmoil. They can't borrow the amounts of money needed.

If they print the currency should in theory go down in value.

But this brings us back to the very basic problem, Western Currencies generally are over valued. Unfortunately there are many interests ensuring that the basic imbalance continues. You cannot run a major economy on the hope that you will be ahead of everyone in the technology or knowledge based sectors. That is an impossibility.

Squire do you really think this downturn is temporary or what ? You know better than others that the East is capable of anything the West does and sometimes does it better - leapfrogging over dead-end industries for the latest, most efficient, cheapest.

China outgrew Germany recently and it won't be long before it eclipses Japan too. How big can it potentially get? It will naturally compete with the rest for resources - is there anything to say it could become as resource-hungry as the EU, the US, Russia, Canada and more put together because it has similar population numbers though it doesn't have anything like the land area. Economically it could become as powerful as the rest though could it?

That electric car coming out of China might be a lot cheaper than what you'd buy here and that would put it up the West not to mention yokes coming out of India that cost 2k. They might be undesirable here, doesn't mean they won't come here. Maybe investors are waiting for massive industrial shifts like that to happen.

Audi we can all don hair shirts and throw ash in our hair but the reality is that this will bottom out. Cars, televisions etc will eventually need to be replaced or repaired and employment will be created and as that happens the upward spiral starts. Even in a recession most people are employed and people will still need food, shelter, clothing. They will get married, have children and die. So much will continue as always.

We have to some extent based our economy on borrowings and the consumption of the unnecessary. If some of that excess is removed will the country be the worse for it?

Everywhere I look I see work that needs to be done. One of the reasons for the property boom is the average person's inability to invest in anything that they can control other than housing. I think that we would do well to look at that.

Unless something strange happens China will become the largest economic power within the next 25 years. It needs to invest internally and as it's economic strength grows it will suck in more and more commodities. China as the World power worries me.

India I prefer but it will not effectively challenge China. It has a different outlook on economics. China is state sponsored capitalism, India is semi socialist and profits are capped in some sectors.

The West generally is in decline. If you invent a product in Europe why would you chose to manufacture it in an expensive region of the world?

Squire wrote:

If you invent a product in Europe why would you chose to manufacture it in an expensive region of the world?

I suggest you ask Mercedes, Porsche, and so on.

soubresauts wrote:

Squire wrote:

If you invent a product in Europe why would you chose to manufacture it in an expensive region of the world?

I suggest you ask Mercedes, Porsche, and so on.

These are high end ego products where the cost adds to the value of owning. Fools trinkets. On day to day items many companies that were once located in Europe have now moved and as the middle class in the East increases location there becomes increasingly attractive. Take Dyson as an example.

It is often also a question of transport cost, cost of moving plant, and in some cases government regulation or government orders.

Squire wrote:

Audi we can all don hair shirts and throw ash in our hair but the reality is that this will bottom out. Cars, televisions etc will eventually need to be replaced or repaired and employment will be created and as that happens the upward spiral starts. Even in a recession most people are employed and people will still need food, shelter, clothing. They will get married, have children and die. So much will continue as always.

We have to some extent based our economy on borrowings and the consumption of the unnecessary. If some of that excess is removed will the country be the worse for it?

Everywhere I look I see work that needs to be done. One of the reasons for the property boom is the average person's inability to invest in anything that they can control other than housing. I think that we would do well to look at that.

Unless something strange happens China will become the largest economic power within the next 25 years. It needs to invest internally and as it's economic strength grows it will suck in more and more commodities. China as the World power worries me.

India I prefer but it will not effectively challenge China. It has a different outlook on economics. China is state sponsored capitalism, India is semi socialist and profits are capped in some sectors.

The West generally is in decline. If you invent a product in Europe why would you chose to manufacture it in an expensive region of the world?

Interesting to hear more about India - these countries are the ones to watch though aren't they? On the world marketplace they are the fella with the cheaper stall in all things (some counterfeit stuff too) and naturally they'll take business from the locals, if allowed.

I'm sure the WTO have worked it out but could there be a dangerous disparity between India and China's (cheaper) products reaching a bloc where an adjustment in the cost of labour for local production is needed?

So when you say that products will need to be replaced of course I agree and that business will continue to chug along and if people are losing work here because of cheaper Chinese or Indian products then it will follow that cheaper eastern products will be more affordable anyway so their deflated wage difference here will stretch farther anyway. I just wonder is there a disparity in there though? Products from EU area producers are priced higher than Eastern products so it's possible EU electronics will be hit and will need to adjust wages and prices, costs and processes. Will this happen smoothly do you think or is the bumpiness we're feeling now sort of down to this? i.e. the one-way street of consumption without production - credit to buy crap as you kind of say. We might have spent our way out of jobs in Europe .. ?

As you say stuff will break and will need to be replaced and that will keep the wheel turning but at a lower speed than consumption which suddenly filled thousands of new houses with new fridges and other appliances. Growth in population will have a certain effect in this vein too but at a lower level and Ireland's population isn't growing ... bizarrely David McWilliams theorised before that inviting the Irish diaspora back here could be a key part of our future here ... we can't devalue or print currency but we can repopulate our island. We need them to bring back tons of pesos quickly to take all those houses off our indebted hands.

I don't particularly think the West is in decline. We have many, many problems but I don't see any other world region coming up with an alternative method of doing business or reforming society. If anything, I'd bet if fundamental changes occur that the West will again lead the way forward.

Sure things are changing. We have endured, imo, three decades of "trickle down" economics and masked the drop in living standards through debt accumulation. We've allowed a cabal of so called "experts" to spout shite while, all the while, they been purely motivated by self interest to the detriment of the common good, if you will. However, most people in their daily lives have willingly given up thinking about bigger issues as they pursue their own self interests. Der's plenty of blame to go around.

Strip away all the hyperbole, we still have a good standard of living. If we got rid of all the superfluous shite we accumulate and did an audit of living standards as measured in necessity of material goods and the ability to sustain economies, we're still in good shape. Things are far from perfect but I don't think they'll ever be perfect.

I'd identify the shifts in world dynamics to two or three major events (forgetting about the mintuae of local economic-political systems).

1. There are very few effective barriers for individual countries to enter into any given economic activity anymore. Whilst everyone bangs on about cheap labour in India or China, they tend to ignore that the Indians and Chinese are making great leaps forward in quality control and technological innovative uses in production. Technology, like any other commodity, is easily transportable. If a country has the capital and a reasonably educated worksforce, they can quickly import technoligical innovation. If you look at the UK companies who are still doing well, they are companies that often trade on their technological abilities while foregoing manufacturing.

2. I'm fond of saying that the Americans love big numbers and immediate results, but this is becoming true across the globe. It's also allied with the notion that we are always just days away from "the" big and new technological innovation which will allow us to carry on with our profligate consumerist tendencies. We don't have to adjust our expectations because superman or a scientist is about the replace petrol, for example, with hyrdogen driven vehicles. I can't help wondering if there is a correlation between the stagnation in real wages, adjusted for inflation, in the US since the 1970 and their need to import oil during the same period. There are, of course, a myriad of different factors which have impacted on economies.

3. Which brings me to a final point. We, individually and colletively, seem incapable of assesing risk in a meaningful fashion. The US has known what affect that oil importation would have on their economy for over 30 years. If they didn't, the oil embargo of the 1970's sure brought the message home. They came up with some clever responses through pricing oil in dollars but they never had the stomach to address the issue(s) head on. They wait for the market to dictate the issues - "when oil goes to $100+ a barrel, we'll come up with innovations.) The sanest response, which President Carter suggested, would be to curtail oil consumption. He was roundly derided.

The market, with or without capitalist ideology, will address the issue. Supply and demand always force a solution - be it good or bad. The question is whether any society has the stomach to become proactive and adopt measures on a wholesale basis to address the concerns of a very complex social setting in which we now find ourselves. I'm 100% sure that technological innovation will address many issues. As suped-up monkies we have a clever ability to come up with new ways to deal with old problems. But, do we have the ability to change our overall mentality in dealing with increasingly complex issues which often just require small and incremental adjustments on a local scale to make huge differences on a regional basis? Yeah, tv and such junk require replacement but how many homes now have 2+ tvs (often one which acts a babysitter for childre)? How many homes now have a library of books?

rockyracoon wrote:

How many homes now have a library of books?

How many homes have no books, how many libraries have closed? It is surprising how many people are still leaving school with poor reading and numeracy skills

I agree that there are a lot of strengths in the West but your arguement would have a lot more weight if it were not for entire sectors of production that have moved elsewhere and they are not all menial low skilled jobs.

India and China in the 80s did not have the wealth necessary to invest in widespread development. They are now a lot more able to do this and both countries have a large educated population. It is not a time to be complacent.

rockyracoon wrote:

Yeah, tv and such junk require replacement but how many homes now have 2+ tvs (often one which acts a babysitter for childre)? How many homes now have a library of books?

1 television, bought 19 years ago. Several thousand books. We're probably not that normal though .

rockyracoon wrote:

Technology, like any other commodity, is easily transportable.

Very good points in your post about the re-balancing between east and west that will more than likely go on in terms of machinery but the problem is people and paying them.

Some big outfits will up and leave but others will import that technology and produce more cheaply here. Or else there will be a market implosion here for some goods as they fly in here cheaper than they can be made here.

Perhaps these items will be aimed at certain markets - the less well off or the really stingy or something. I'm very much thinking of the Indian car, the TATA Nano which will be on sale here eventually (2011) and could cost less than €2000

There are probably plenty other goods like that that could knock the arse out of industries here, or at least change the patterns of vehicles in our cities. There could be big changes afoot, the issue is how we're going to deal with them. (not essentially on this thread though)

I think my friend's Mazda's lights cost €2000

http://blogs.edmunds.com/straightline/2009/03/tata-nano-europa-to-go-on-sale-in-europe-in-2011.html