German Factory Orders Unexpectedly Fall on Weak Recovery

Photographer: Krisztian Bocsi/Bloomberg
Domestic factory orders rose 2.2 percent in August from the previous month, while foreign demand fell 2.1 percent, today’s report showed.

German factory orders (GRIORTMM) unexpectedly fell in August, backing up the European Central Bank’s view that the economic recovery in the euro area is fragile.

Orders, adjusted for seasonal swings and inflation, dropped 0.3 percent from July, when they fell a revised 1.9 percent, the Economy Ministry said today in an e-mailed statement. Economists forecast an increase of 1.1 percent in August, according to the median of 40 estimates in a Bloomberg News survey. Orders climbed 3.1 percent from a year ago, when adjusted for the number of working days.

While Europe’s largest economy is being supported by an “extraordinarily good” consumer climate, growth slowed in the third quarter, the Bundesbank said last month. Headwinds include near-record unemployment in the 17-nation euro area, Germany’s biggest trading partner, and a U.S. government shutdown.

“Fundamentally it is going to be a slow recovery even if Germany benefits a bit more than others from global trade,” said Aline Schuiling, an economist at ABN Amro Bank NV in Amsterdam. “While there may be bumps in the road from things like the U.S. government shutdown, it’s not going to derail the economy. We’re heading toward an acceleration in global growth in the second half of this year.”

‘Gradual Improvement’

Domestic factory orders rose 2.2 percent in August from the previous month, while foreign demand fell 2.1 percent, today’s report showed. Basic-goods orders increased 0.5 percent from July, while demand for consumer goods dropped 0.4 percent. Investment-goods orders decreased 0.7 percent, with domestic demand rising 4.7 percent and orders from the euro area declining 9.2 percent.

“The strong increase of domestic demand for investment goods points to a revival in investment activity,” the Economy Ministry said. The volume of orders continues to be above the average level recorded in the second quarter, it said. Bulk orders were below average in August.

ECB President Mario Draghi said last week that current economic data in the 17-nation euro area confirm a picture of “gradual improvement from low levels.” Unemployment dropped to 12 percent in July from a record 12.1 percent the prior month and held at that level in August.

The chief executive of Henkel AG, the maker of Loctite glue and Fa soap and deodorant, said on Oct. 2 that Europe still faces years of economic difficulty.

U.S. Shutdown

“We don’t expect a lot of growth, if any at all in western Europe” by 2017, Kasper Rorsted said in an interview with Bloomberg TV at the company’s headquarters in Dusseldorf, Germany. “Europe overall in the next four years will have quite a challenging position.”

Draghi also warned that the U.S., the world’s biggest economy, has the potential to derail the global recovery. Treasury Secretary Jacob J. Lew says that in 9 days the nation will exhaust measures to avoid breaching a ceiling on its debt unless government and House Republicans reach an agreement. That’s an event that could trigger a default if no deal is reached.

The shutdown “is clearly on our minds,” Draghi said on Oct. 2 after the ECB kept its benchmark interest rate at a record low of 0.5 percent. “If it were to be protracted, it would certainly pose a risk for the recovery in the U.S. and the world.”

German Exports

German consumer confidence is still at the highest level since 2007 and investor sentiment rose to a three-year high in September, according to separate surveys by Nuremberg-based GfK SE and the ZEW Center for European Economic Research in Mannheim. While the country’s jobless rate unexpectedly rose to 6.9 percent last month, it remains near a two-decade low.

The Bundesbank said in its monthly bulletin on Sept. 23 that it sees signs the economy will improve for the rest of this year. The Frankfurt-based central bank predicts gross domestic product will rise 0.3 percent this year and 1.5 percent in 2014. GDP climbed 0.7 percent in the three months through June.

German exports rose 1 percent in August after falling 0.8 percent in July, government data showed today. Imports climbed 0.4 percent from the prior month and the nation’s trade surplus narrowed to 13.1 billion euros ($17.8 billion) from 16.2 billion euros.

Deutsche Lufthansa AG, Europe’s second-largest airline, said last month it’ll hire cabin crew on part-time, temporary contracts to help staff larger planes intended to boost ticket sales. The Cologne, Germany-based company plans to recruit 500 employees in 2014 on contracts that expire after two years, with an option to extend them by the same timespan.

“Business surveys have shown some signs of peaking and there’s still a risk that the euro zone slips back into recession,” said James Shugg, senior economist at Westpac Banking Corp. in London. “There is an improvement taking place, it’s just not as substantial as earlier in the year.”

To contact the reporter on this story: Jeff Black in Frankfurt at jblack25@bloomberg.net

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

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