Why German Factory Orders Dropped 2.9% in July 2025—and What the Split by Sector Says About a Recovery

Germany’s latest factory-orders update delivered an uncomfortable headline: a 2.9% month-over-month decline in July after seasonal and calendar adjustment. At face value, it extends a three-month downtrend and highlights the industrial economy’s sensitivity to shaky external demand and tight financial conditions. But the anatomy of the report matters. Remove the lumpiness of very large contracts and new orders rose 0.7%, a reminder that core demand has not fallen off a cliff even if headline momentum looks weak.
The swing factor was “other transport equipment.” After an outsized wave of orders in June, July bookings in that category fell 38.6%, dragging the overall total lower. Electrical equipment orders also contracted sharply (-16.8%). By contrast, the auto sector—still a bellwether for German industry—posted a 6.5% increase, suggesting model refreshes and electrification investments are cushioning the blow. The composition by use category fit a similar pattern: capital goods –2.4%, intermediate goods –5.3%, and consumer goods +4.3%. That mix hints at corporate caution toward investment-linked supply chains even as end-market consumption shows more resilience.
External demand remains the soft spot. Foreign orders fell 3.1% in July, split between a 3.8% drop from euro-area customers and a 2.8% decline from non-euro markets. Domestic orders were down 2.5%. The message: Germany’s export machine is still battling weak European capex and the hangover from energy-price shocks and trade frictions. One silver lining is that manufacturing turnover rose 0.9% on the month, indicating production did not stall and that backlogs or prior contracts supported output.
Revisions offered slight comfort. June’s fall was upgraded to –0.2% from –1.0% after updated automotive data, and the rolling three-month change (May–July versus the prior three months) showed a +0.2% gain—though it turned –1.3% once large orders were excluded. In short, the multi-month trajectory is flat to mildly negative, masked at times by swings in big-ticket transport. That nuance is crucial for forecasting: it argues for a slow, uneven stabilization rather than a V-shaped rebound.
For investors and policy watchers, the forward read is all about catalysts. If global rate cuts ease financing costs, Germany’s strength in capital goods should eventually see better order flow. If energy competitiveness improves and supply-chain uncertainty ebbs, electrical equipment and intermediate-goods orders could stop sliding. Until those conditions line up, the base case is a shallow recovery punctuated by volatility in mega orders. Keep an eye on the transport-equipment pipeline, capital-goods inquiries, and the euro-area demand pulse as the decisive tripwires for a turn.