(Bloomberg) -- Europe’s manufacturers headed into the new year on a downbeat note, with expectations for both export orders and employment weakening at the end of a rough 2019.
The latest sentiment figures from the European Commission came just hours after Germany reported an unexpected drop in manufacturing orders. That’s a volatile figure, but it adds to signs that Europe’s largest economy is still struggling to overcome its worst industrial downturn in a decade.
The decline in factory employment expectations is a worrying development if it persists.
Manufacturing, particularly in Germany, is struggling to exit a more than year old slump as it deals with uncertainties including the U.S.-China trade war and the U.K.’s planned exit from the European Union. The bigger risk for the economy is that -- as the Bundesbank predicts -- the industrial weakness will bleed into the wider economy through 2020.
The commission’s headline confidence index rose slightly in December to 101.5 from 101.2, led by services, where firms grew more optimistic about the near-term outlook. Manufacturing sentiment declined slightly.
“Things look pretty decent for the European consumer,” John Roe of Legal & General Investment Management said on Bloomberg TV. “It all comes over to do you get this spillover into services. If it stays in the manufacturing side, it’s not enough to derail the European economy.”
The German data earlier on Wednesday showed orders slumped 1.3% in November, the biggest decline since July and defying estimates for a 0.2% gain. The drop was primarily driven by bulk orders and lower overseas demand for investment goods, while consumer products stagnated.
In one bright spot, a previous decline for October was revised to a slight gain, resulting in an overall improvement in the two months through November compared with August and September.
“Incoming orders have stabilized at a low level in recent months,” the economy ministry said in a statement. “The outlook for industrial activity has improved somewhat.”
A separate report on Monday showed that German car production -- a bedrock of the economy -- was particularly hard hit last year by waning exports. Vehicle output fell to its lowest in almost a quarter of a century, according to the VDA car lobby.
The Bundesbank says Germany’s economy probably stagnated in the fourth quarter, and growth is set to remain below 1% this year. The euro-areas expansion is forecast by economists to cool for a third straight year in 2020, to 1%.
(Updates with chart, comment from analyst)
