German Factory Orders Fall as Euro Crisis Curbs Demand

German factory orders unexpectedly fell in January as the sovereign debt crisis curbed demand in the euro area.

Orders, adjusted for seasonal swings and inflation, declined 1.9 percent from December, when they rose a revised 1.1 percent, the Economy Ministry in Berlin said today. Economists forecast a 0.6 percent gain, according to the median of 41 estimates in a Bloomberg News survey. In the year, workday-adjusted orders dropped 2.5 percent.

The Bundesbank expects the German economy to rebound in the current quarter after contracting 0.6 percent in the final three months of 2012. Confidence among entrepreneurs and investors jumped in February and retail sales rose the most in more than six years in January. At the same time, the euro area, Germany’s largest export market, is in a recession and the European Central Bank predicts only a gradual recovery later this year.

“After a long series of encouraging sentiment indicators, today’s new orders are a disappointment” and “a painful reminder that the crisis is not over yet,” said Carsten Brzeski, senior economist at ING Group in Brussels. “While the solid labor market and a sharp increase in retail sales in January already confirmed the growth-supportive role of consumption, the strengthening of industrial activity remains a very gradual and choppy one.”

Market Reaction

The euro and European stocks climbed before the ECB announces its interest-rate decision at 1:45 p.m. in Frankfurt. The euro increased 0.4 percent to $1.3022 at 1:12 p.m. in Frankfurt, and the Stoxx Europe 600 Index rose 0.2 percent. In the U.S., futures on the Dow Jones Industrial Average, which closed at a record high yesterday, advanced 0.2 percent and S&P 500 futures gained 0.1 percent.

The Bank of England held its bond-purchase program at 375 billion pounds ($565 billion) and kept its key rate at 0.5 percent today. The Bank of Japan -- set for a change in leadership -- left an asset-purchase fund unchanged at 76 trillion yen ($810 billion) and rejected a call for an immediate start to open-ended buying.

Elsewhere, the Swiss central bank said it spent 188 billion francs ($199 billion) in 2012, more than the previous year, to enforce the cap on its currency to protect the economy.

Bulk Orders

In Germany, factory orders from the euro area slumped 4.1 percent in January, driving a 3 percent decline in export demand, today’s report shows. Domestic sales dropped 0.6 percent. Orders for intermediate, investment and consumer goods all fell. December orders were revised up from an initially reported 0.8 percent increase.

The number of bulk orders in January was significantly below average, the ministry said. Still, “the drop in orders at the beginning of this year signals that the manufacturing industry hasn’t overcome its weak phase yet,” it said.

Germany exports about 40 percent of its products to the euro area.

The 17-nation euro economy will shrink 0.3 percent this year, according to the ECB’s December forecasts. It will update its projections today.

“Although the first signs of economic stabilization are emerging, we expect at least the first half of the year will remain very challenging,” Deutsche Post AG Chief Executive Officer Frank Appel said on March 5. “We do expect an improvement in the second half of the year.”

French Unemployment

Unemployment in France, the euro area’s second-largest economy, climbed to a 13-year high in the fourth quarter, data released by the national statistics office showed today. The jobless rate, based on International Labor Organization standards, rose to 10.6 percent from a revised 10.2 percent in the previous three months.

Some German companies are compensating for weaker European demand with shipments to faster-growing regions.

Henkel AG, the German maker of Loctite glues and Persil detergent, said yesterday it expects higher profitability and sales to rise as much as 5 percent this year as gains in emerging markets help reduce the company’s reliance on Europe.

“A lot points to a strong rebound after the slump in the fourth quarter,” said Ulrike Rondorf, an economist at Commerzbank AG in Frankfurt. “There’s a good chance Germany will lead the euro-area economy back to growth this year.”

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