German Factory Orders Unexpectedly Rose on Investment Goods

German Factory Orders Unexpectedly Rise
A Bayerische Motoren Werke AG (BMW) employee puts the hood ornament logo on a 5-series automobile at the company's factory in Dingolfing, Germany. Photographer: Guenter Schiffmann/Bloomberg

Factory orders in Germany, Europe’s largest economy, unexpectedly rose for a third month in June, boosted by investment goods such as machines.

Orders, adjusted for seasonal swings and inflation, increased 1.8 percent from May, when they rose a revised 1.5 percent, the Economy Ministry in Berlin said in a statement today. Economists forecast a drop of 0.5 percent, according to the median of 27 estimates in a Bloomberg News survey. In the year, orders rose 9.5 percent, when adjusted for work days.

German business confidence remains at a near-record high and the Bundesbank, which predicts the economy will expand 3.1 percent in 2011, says the outlook remains “favorable.” At the same time, manufacturing growth slowed from Europe to the U.S. and China last month, adding to signs that the global recovery is faltering amid debt crises on both sides of the Atlantic.

“Today’s new order numbers should put at least some oil on troubled waters,” said Carsten Brzeski, an economist at ING Group in Brussels. “At least the German industrial engine is not yet running out of fuel.”

The euro was little changed after the release, trading at $1.4234 at 12:45 p.m. in Frankfurt, down 0.6 percent on the day.

‘Positive’ Prospects

The ministry said orders had been boosted by big-ticket items over the past months. It revised May’s increase from a previously reported 1.8 percent.

Factory orders from abroad rose 13.7 percent, driven by a 16.4 percent gain from within the euro region, today’s report showed. Orders of investment goods advanced 5 percent from May, when they increased 2 percent, with foreign demand jumping 20.8 percent. Demand for intermediate goods fell 2.1 percent and orders of consumer goods dropped 2.4 percent from May.

“An above average amount of bulk orders for investment goods from abroad clearly contributed to the increase,” the ministry said in the statement. Still, “strong demand impulses are coming from the domestic side and foreign demand is just as lively due to bulk orders. The prospects for industrial production are overall positive.”

German exporters have relied on faster-growing markets as governments across the 17-member euro region cut spending to plug budget gaps to fight a worsening fiscal crisis.

Porsche AG, the German sportscar maker, said on Aug. 1 that first-half operating profit surged 59 percent, with sales growing the fastest in China. German rival Bayerische Motoren Werke AG the following day reported a 66 percent gain in second-quarter profit, beating analyst estimates.

‘Volatile’ Orders

“Three consecutive months of expansion in industrial orders are rare due to volatile bulk orders and we expect a setback” in the coming months, said Christian Schulz, an economist at Joh. Berenberg Gossler & Co. in London. “The resilience of German manufacturing is remarkable.”

The economy is showing some signs of a slowdown. Investor confidence dropped to the lowest in 2 1/2 years in July. Growth of German plant and machinery orders weakened in June, the VDMA machine makers’ association said on Aug. 1.

Siemens AG, BASF AG and Volkswagen AG, three of Germany’s biggest companies, reported earnings last month that missed analyst estimates.

Reviving domestic demand may pick up some slack left by a weaker global economy, helped by increasing employment, the Bundesbank said in its July bulletin. German unemployment dropped for a 25th straight month in July.

“The outlook for the global economy has definitely worsened,” said Ulrike Rondorf, an economist at Commerzbank AG in Frankfurt. “The recovery in the German economy should nevertheless continue, although at a more normal pace.”

The European Central Bank will keep its benchmark interest rate on hold when policy makers meet today, after raising borrowing costs by 25 basis points to 1.5 percent in July, a Bloomberg survey shows. The Frankfurt-based central bank will release its decision at 1:45 p.m.