China Prices and German Export Orders Fall

Two significant signs of the worsening global slowdown come from China and Germany--two of the world's largest exporting countries.

Consumer prices in China fell 1.6 percent lower last month than the same month in 2008. This was the first decline since December 2002. February’s result represented a fast drop from an inflation rate of 8.7 percent in February of last year, when rising prices were a top priority for the Chinese government.

Producer prices are falling even faster. Oil and commodity prices contributed to the drop, but also a by a glut of factory capacity and falling of demand from both exporters and Chinese. Producer prices were 4.5 percent lower last month than a year earlier, after having shown annual increases of as much as 10 percent as recently as last summer.

Hong Kong business leaders also warned that their mainland factories are not running full capacity, but only a few have actually closed down. “They may be operating at one-third or half of production” capacity, said Clement Chen, the chairman of the Federation of Hong Kong Industries.

China’s problems, while not nearly as bad as America or Europe, are beginning to take a toll. China’s growth rate has already been declared to be about 6%, substantially below the near 10 percent rate of the last decade.

On the positive side, the stimulus spending package is already showing up in investment totals, as China is pumping about $500 billion into its economy. No one, at least yet, has predicted their economy will turn negative for 2009.

These developments in China, and reports that Germany is now facing a worsening economy, will probably contribute to the sense in the upcoming G-20 meeting in London that there needs to be a world-wide coordination of stimulus spending.  Mr. Obama has already put this at the top of his agenda, and Chinese officials have voiced similar sentiments. 

Only Chancellor Angela Merkle of Germany has not seen the need for a large stimulus plan.  Perhaps the 38 percent plunge in January export orders,  the biggest drop since data for a reunified Germany started in 1991, will get her attention. “The annual slump is absolutely catastrophic,” said Alexander Koch, an economist at UniCredit MIB in Munich. “The extent of declines is terrifying.”

From Bloomberg, "Export factory orders for Germany sank 11.4 percent in January from December, according to today’s report, with orders from outside the 16-nation euro region dropping 18.2 percent. Domestic demand dropped 4.3 percent in the month.

Pan-European Slump

Production is slumping across Europe. In the U.K., factory output dropped 6.4 percent in the three months through January, the most in at least four decades. French industrial production declined 3.1 percent in the month, five times the pace predicted by economists.

The German economy, Europe’s largest, will shrink 2.5 percent this year, the International Monetary Fund said on Jan. 22, three times as much as previously forecast. The European Central Bank expects the euro-region economy to contract about 2.7 percent in 2009."