Overview: German new manufacturing orders dropped 6.0% m/m in November, almost repeating the terri-fying 6.3% m/m collapse in October (revised from 6.1% m/m). On a yearly basis orders are now 24% below the level in November 2007. This spells trouble not only for Germany but also for the rest of Europe. We haven't seen anything this dramatic in German orders since the series began in 1962; the closest being the decline seen in 1993 and around New Year 1973/74, when orders dropped approximately 15% y/y.

Details: What started off as a normal correction from very high levels has developed into an outright col-lapse. Germany is truly feeling the downside of being world champion of exports, see Research Euroland: Exports hit by CEE collapse. Export markets are fading as the financial crisis is sweeping over the econo-mies and this is having a profound effect on German domestic orders and ultimately on industrial produc-tion and employment there.

Orders fell 6.0% m/m in November. Demand plunged not only in Germany and the other euro area coun-tries, but also in the other major export markets for the Euroland economy. German domestic orders fell 7.4% m/m, while foreign orders were down 4.4% m/m with almost equally large declines in demand from both euro and non-euro area trading partners.

Capital goods orders dropped 4.2% m/m led by a 7.5% m/m decline in domestic capital orders. Intermedi-ate goods orders were down 9.5%. Consumer durables fell 1.3%.

Outlook and assessment: These are dreadful numbers, pointing not only to a very deep recession in Europe's biggest economy but also to a serious slump in the other Euroland countries.

We think the ECB will be forced to respond to this by lowering the leading rate by 50 bp at the meeting on January 15 and by an additional 25 bp in both February and March, bringing the leading rate down to a his-torical low of 1.5% before the end of Q1 09. In the current juncture our call on ECB rates is surrounded by unusually large uncertainty, but today's numbers should – in combination with the sharp decline in price pressure – practically eliminate the remaining upside risk to our forecast for January. However, the ECB may disappoint as they have repeatedly mentioned that they will see the accumulated 175 bp cut already made filter through the system. The evidence of pass-through so far is less than encouraging.