German Factory Orders Fall; Economy Struggles to Recover

German factory orders fell more than economists predicted in April as Europe’s largest economy struggled to gain strength.

Orders, adjusted for seasonal swings and inflation, decreased 2.3 percent from March, when they increased a revised 2.3 percent, the Economy Ministry in Berlin said today. Economists forecast a 1 percent drop, according to the median of 39 estimates in a Bloomberg News survey. In the year, workday-adjusted orders fell 0.4 percent.

The European Central Bank is expected by economists to lower its economic outlook when it meets in Frankfurt today, a month after cutting interest rates to help the euro region out of its longest-ever recession. At the same time, German business confidence rose in May for the first time since February, and consumers’ optimism is set to climb to the highest since 2007 in June, as higher wages boost spending power.

“A decline was to be expected after significant increases in the previous months,” said Gerd Hassel, an economist at BHF-Bank AG in Frankfurt. “Therefore, it’s not a sign of an economic slump but rather of the usual volatility. German growth should pick up in the second quarter.”

The German economy grew only 0.1 percent in the first three months of the year, less than economists anticipated. The Bundesbank will release new forecasts tomorrow. In December, the Frankfurt-based central bank predicted growth of 0.4 percent this year and 1.9 percent for 2014.

Orders Slump

The euro was little changed after the report and traded at $1.3114 at 12:47 p.m. in Frankfurt. The Stoxx Europe 600 index rose to 296.03, up 0.3 percent on the day.

Domestic orders declined 3.2 percent in April, while foreign demand dropped 1.5 percent, with orders from the euro area down 3.6 percent, today’s report showed. Basic-goods orders fell 1.9 percent from March, while investment-goods orders slumped 3.6 percent. At the same time, demand for consumer goods surged 7.5 percent in April, with orders from the euro area jumping 14.8 percent.

The German Economy Ministry said April orders were roughly in line with the average demand in the first quarter. Adjusted for big-ticket items, orders rose every month this year, it said.

“That speaks for the fact that the German industry is in the process of overcoming its weak phase,” the ministry said.

More Optimistic

“Orders in February and March were very strong due to bulk orders so a drop is more like a statistical correction,” Ulrike Rondorf, an economist at Commerzbank AG in Frankfurt, said before today’s report. “Confidence indicators like Ifo are however showing that companies are becoming more optimistic and that the ECB’s expansive monetary policy should reflect in greater willingness to invest.”

The ECB will keep its benchmark interest rate on hold when it meets today, according to the median of 59 economists in a Bloomberg News survey. That decision is due at 1:45 p.m. in Frankfurt.

Around the world today, U.K. house prices rose for a fourth month in May as government measures to help the property market boosted demand, according to Halifax, the mortgage unit of Lloyds Banking Group Plc. In the U.S., initial jobless claims probably rose 345,000, according to a Bloomberg News survey of economists.

Domestic Demand

Audi AG, the world’s second-largest maker of luxury cars, said on May 16 that high-performance cars like the RS5, as well as the new version of the A3 compact, will help propel sales this year amid intensifying economic headwinds.

After increasing in April, German new car sales resumed a decline in May, the German Federal Motor Vehicle Office, or KBA, said on June 4. The European auto market is contracting for a sixth consecutive year to a two-decade low amid a recession in the region that’s lasted at least six quarters.

“Orders are being supported by strong domestic consumption and that should continue,” said Stefan Kipar, an economist at Bayerische Landesbank in Munich. “In terms of the European economy I think we have reached the bottom and should see a recovery in the course of the year.”

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