German Factory Orders Add to Signs of European Recovery: Economy

German factory orders rose in December as euro-area demand jumped, adding to signs that the region may be starting to recover from recession.

Orders, adjusted for seasonal swings and inflation, increased 0.8 from November, when they fell 1.8 percent, the Economy Ministry in Berlin said today. The median forecast in a Bloomberg News survey of economists was for a 0.7 percent gain. Factory orders from the euro area surged 7 percent.

The report is the latest to suggest the 17-nation euro economy is starting to improve after the sovereign debt crisis pushed it into recession last year. Spanish house prices halted a three-year decline in January and euro-area economic confidence rose to a seven-month high. Rising demand in the currency bloc would bolster growth in Germany and help it rebound from a contraction in the final quarter of 2012.

“It’s good news that the increase in euro-area orders was so big,” said Frederik Ducrozet, an economist at Credit Agricole SA in Paris. “It’s too early to declare a recovery in the euro area, but for Germany this could be the beginning of some good hard data in the first quarter.”

European stocks were little changed, with the Stoxx 600 Index down 0.05 percent at 12:20 p.m. in London. The euro traded at $1.3521 for a decline of 0.5 percent today. It has gained 2.4 percent against the dollar this year.

Investment Goods

German domestic factory orders fell 1.2 percent in December while orders from abroad rose 2.4 percent, driven solely by the jump in demand from the euro area. Orders for investment goods and consumer goods increased.

“Together with the improvement in the business climate in recent months, early indicators signal an imminent end to the weak phase in the industrial sector,” the ministry said. Today’s data are “a good sign for production this year.”

Germany’s Ifo business climate index has outperformed economists’ expectations for the past three months, services output rose at the fastest pace in more than 1 1/2 years in December and a gauge of manufacturing climbed. That helped unemployment to unexpectedly drop for a second month in January, taking the jobless rate down to 6.8 percent.

Spain Risks

In Spain, home prices were little changed in January after 36 consecutive months of decline, Fotocasa, a Spanish real estate website, said today. Still, the euro area’s fourth-largest economy has the potential to derail a recovery in the region, Fitch Managing Director Ed Parker said.

“There is still a large budget deficit that will take several more years of austerity to close, to stabilize and then reduce government debt from high levels,” Parker said in an interview in Oslo today.

In the U.K., house prices slipped last month on uncertainty about the economic outlook, according to Halifax. In the U.S., the Mortgage Bankers Association will report on home-loan applications for the week ended Feb. 1 later today.

While conditions have improved in the euro area, European Central Bank President Mario Draghi warned on Jan. 25 that the economy isn’t in the clear yet.

“The perception we have at the ECB is that the level of economic activity is in the process of stabilizing at a very low level,” he said. “We foresee a gradual recovery in the second part of the year.”

Economic Contraction

The ECB predicts the euro economy will shrink 0.3 percent this year. For Germany, the outlook is more positive, with the Bundesbank forecasting growth of 0.4 percent.

Germany’s Infineon Technologies AG, Europe’s second-biggest chipmaker, said on Jan. 31 that it expects first-quarter earnings to improve as demand picks up from the car industry.

Still, weaker global growth and uncertainty over whether the debt crisis has been mastered is causing companies to delay hiring and investment.

Peter Loescher, Chief Executive Officer of Siemens AG, Europe’s largest engineering company, said on Jan. 23 that he doesn’t expect “any tailwinds from the global economy” to help the company meet its targets.

“There’s always the risk of setbacks caused by new developments in the European debt crisis,” said Thilo Heidrich, an economist at Deutsche Postbank AG in Bonn. Still, “the improvement in business confidence is beginning to reflect in the hard data.”

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