German Manufacturing Orders Unexpectedly Declined in March

Factory orders in Germany, Europe’s largest economy, unexpectedly dropped in March, led by a slump in demand for investment goods at home and abroad.

Orders, adjusted for seasonal swings and inflation, slipped 4 percent from February, when they rose a revised 1.9 percent, the Economy Ministry in Berlin said in a statement today. Economists had forecast a gain of 0.4 percent, according to the median of 22 estimates in a Bloomberg News survey. In the year, orders rose 9.7 percent, when adjusted for work days.

Surging energy prices have clouded the economic outlook by sapping purchasing power of households and companies, while countries from Ireland to Spain toughen austerity measures. In Germany, companies have relied on faster-growing markets to bolster orders. Siemens AG (SIE), Europe’s largest engineering company, yesterday raised its full-year earnings forecast.

“Although the series is notoriously volatile the fall in orders clearly signals that Germany’s industrial sector lost some strength moving into the second quarter," said Aline Schuiling, senior economist at ABN Amro Bank NV in Amsterdam. ‘‘Fiscal policy tightening in the euro zone probably kicks in and world trade becomes less vigorous."

The euro extended its decline after the report and traded at $1.4831 at 12:17 p.m. in Frankfurt.

‘Favorable’ Outlook

The ministry had previously reported an order increase of 2.4 percent for February. It said today that the outlook remains ‘‘favorable’’ and that the share of big-ticket items was ‘‘strongly below average.’’

The Bundesbank forecast German economic growth will weaken to 2.5 percent this year from last year’s record 3.6 percent expansion. The Frankfurt-based central bank said on April 18 the country’s ‘‘positive economic fundamental trend should continue’’ in the current quarter.

Foreign factory orders dropped 4.3 percent from February, when they increased 1.8 percent, today’s report showed. Domestic orders slipped 3.5 percent. Orders for investment goods dropped 7.2 percent from the previous month, when they rose 3.6 percent. Orders for consumer goods fell 0.6 percent in the month, while those for intermediate goods rose 0.3 percent.

Continental AG, Europe’s second-largest auto-parts maker, today reported its highest profit in more than three years. The Hanover, Germany-based company had a ‘‘good start to the year,” Chief Executive Officer Elmar Degenhart said.

Broadening Recovery

The German economy’s recovery is broadening as companies add workers and raise wages, encouraging consumer demand. Unemployment fell below 3 million for the first time in almost 19 years in April, keeping the jobless rate at 7.1 percent.

Bayerische Motoren Werke AG (BMW), the world’s largest maker of luxury vehicles, on May 4 reported record first-quarter profit per car on surging demand for the revamped 5-Series sedan and overhauled X3 sport-utility vehicle. Siemens said the same day that profit will rise at least 75 percent this year.

The global economy is in “good shape,” Siemens CEO Peter Loescher said yesterday. “We’ve achieved outstanding, broad- based orders growth.”

The recovery is showing some signs of slowdown. German business confidence fell for a second month in April and inflation accelerated to 2.6 percent, the fastest in 2 1/2 years. In the 17-member euro region, economic confidence also weakened last month and industrial orders rose less than economists forecast in February.

While the European Central Bank last month raised its benchmark interest rate by 25 basis points to 1.25 percent, some policy makers have signaled a need for further monetary tightening. Investor expectations for two more quarter-point increases in the main lending rate this year are “well founded,” ECB council member Ewald Nowotny said on April 16.

The Frankfurt-based central bank will release its rate decision at 1:45 p.m. Frankfurt time, followed by a press conference 45 minutes afterwards.

“The economic upswing in Germany remains on track,” said Joerg Lueschow, chief economist at WestLB AG in Dusseldorf. “While the peak in growth lies behind us, there’s no reason to fear a downturn this year.”

To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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