European Industrial Orders Fell the Most in Almost Two Years in September

European industrial orders slumped the most in almost two years in September, suggesting weaker global growth and a stronger euro are starting to hurt exports.

Orders in the 16-nation euro area dropped 3.8 percent from August, when they rose 5.1 percent, the European Union’s statistics office in Luxembourg said today. That’s the biggest plunge since December 2008 and sharper than the 2.5 percent drop forecast by economists in a Bloomberg News survey. Orders rose 14 percent from September 2009.

European companies may struggle to maintain their earnings growth as the euro’s strength undermines exports just as the global recovery falters and governments step up budget cuts. Hochtief AG, Germany’s largest builder, said on Nov. 11 that new orders fell in the third quarter. Still, German business confidence unexpectedly surged to a record this month and Europe’s manufacturing growth accelerated.

“Euro-zone manufacturing activity has clearly slowed from the peak levels seen in the second quarter and the suspicion is that” companies “will find life tougher in 2011,” said Howard Archer, chief European economist at IHS Global Insight in London. “Global growth appears to be slowing and domestic demand is likely to be increasingly limited in a number of euro- zone countries by tighter fiscal policy.”

The euro was little changed after the report, trading at $1.3319 at 11:37 a.m. in Brussels, down from $1.3367 yesterday.

Budget Cuts

Euro-region economic growth weakened to 0.4 percent in the third quarter from 1 percent in the previous three months as countries from Ireland to Spain toughened budget cuts, undermining consumer confidence. The EU statistics office will release a breakdown of third-quarter gross domestic product on Dec. 2.

While exports helped fuel the region’s fastest expansion in four years in the second quarter, the euro’s 5.9 percent ascent against the dollar over the past three months is making goods less competitive abroad. The Organization for Economic Cooperation and Development on Nov. 18 lowered its global growth forecast for next year and forecast a “soft spot.”

Euro-area orders for capital goods dropped 2.5 percent in September from August, when they rose 7.9 percent, today’s data showed. Orders for durable consumer goods fell 6.3 percent and those for intermediate goods slipped 2.2 percent. Orders excluding heavy transport equipment such as ships and trains declined 3.3 percent from August, when they rose 4.4 percent, according to the report.

Consumer Spending

Companies may not be able to rely on consumer spending to boost earnings as governments cut outlays and raise taxes to plug budget shortfalls. Spanish Finance Minister Elena Salgado said today that there’s “absolutely” no risk of the country asking for external aid after Ireland earlier this week requested assistance from the EU and the International Monetary Fund.

“Markets are able to assess the differences from one country to the other,” European Central Bank council member Yves Mersch told CNBC in an interview broadcast today. “This would not be the case if contagion” affected the whole region.

To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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