German Factory Orders Increase as Economic Outlook Improves

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The Bundesbank increased its forecasts for German economic growth this year and next as record-low unemployment and a recovering euro area boost consumption.

The upbeat assessment came as data on Friday showed factory orders climbed for a second month in April, rising a better-than-forecast 1.4 percent. The German central bank sees gross domestic product increasing 1.7 percent in 2015 and 1.8 percent in 2016. That compares with December predictions of 1 percent and 1.6 percent, respectively.

Germany, Europe’s largest economy, is benefiting from rising job creation and a euro area that is being revived by European Central Bank stimulus and lower oil prices. The manufacturing report showed that orders from the 19-nation currency bloc surged 6.8 percent in April.

“These are the first signs that the improvement in business sentiment in the euro zone translated into higher demand and arrived in Germany,” said Andreas Rees, an economist at UniCredit SpA in Frankfurt. The region is “still the bread-and-butter business for German companies,” he said.

The euro rose 0.1 percent to $1.1254 at 12:11 p.m. Frankfurt time. The DAX Index of German stocks dropped 1.4 percent.

Inflation Pickup

The economic pickup will fuel a rise in consumer prices, the Bundesbank said. German inflation will average 0.5 percent this year, 1.8 percent in 2016 and 2.2 percent in 2017, it predicted, citing European Union-harmonized calculations. Data this week showed price growth accelerated to 0.7 percent in May from 0.3 percent in April.

“The domestic economy is profiting from the good situation on the domestic labor market, and strong growth in income,” the Bundesbank said.

The increase in factory orders in April exceeded the 0.5 percent median forecast of economists in a Bloomberg survey. Export orders from outside the euro region rose 4.7 percent. Orders for consumer goods gained 4.5 percent and investment goods rose 2.3 percent.

German unemployment fell for an eighth month in May and the jobless rate held at 6.4 percent, the lowest level since the country’s reunification. Companies are seeking to fill as many as 250,000 positions, including 95,000 in health care, Bild Zeitung reported on Friday, citing a study by the German Chamber of Commerce and Industry.

A cyclical recovery is under way in the 19-nation euro area, Germany’s biggest trading partner. On Wednesday, the ECB left its growth forecast for the currency bloc unchanged for 2015 and 2016 at 1.5 percent and 1.9 percent, respectively. It slightly reduced its outlook for 2017 to 2 percent growth from 2.1 percent.

“The engine of core Europe keeps humming nicely,” said Holger Schmieding, chief economist at Berenberg Bank in London. “Germany is starting to reap the benefits of the rebound in growth across the euro zone.”

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