German Factory Orders Unexpectedly Decline on Domestic Demand

German factory orders unexpectedly declined in December on weaker domestic demand, signaling that companies in Europe’s largest economy remain hesitant to invest as surrounding nations struggle to sustain a recovery.

Orders, adjusted for seasonal swings and inflation, dropped 0.5 percent from November, when they rose a revised 2.4 percent, the Economy Ministry in Berlin said today. Economists forecast a gain of 0.2 percent, according to the median of 39 estimates in a Bloomberg News survey. Orders surged 6 percent from a year ago when adjusted for the number of working days.

A sluggish recovery in the rest of the 18-nation euro area, Germany’s largest trading partner, and a slowdown in developing economies have the potential to weigh on sentiment and growth. While the Bundesbank forecasts the economy will expand “strongly” in the first months of 2014, investor confidence unexpectedly declined this month from a seven-year high.

“We don’t really see an acceleration of the German economy, on account of the fact that the global economy is still quite weak,” said Johannes Gareis, an economist at Natixis in Frankfurt. “We see a stabilization of Germany’s growth pace this year.”

Domestic demand fell 1.6 percent in December from the previous month, while export orders increased 0.4 percent, today’s report showed. Orders from the euro area surged 7.5 percent, and those from outside the bloc dropped 3.7 percent.

Bulk Orders

“It’s particularly pleasant that strongly increasing orders from the euro region signal a continuing recovery,” the Economy Ministry said in an e-mailed statement. Investment-goods orders from the euro area jumped 16.5 percent in December from the previous month, the ministry said, adding that bulk orders were above average in December.

So far, Germany has relied mostly on internal demand to sustain growth, with consumer confidence at near-record levels and declining unemployment hinting at a pickup in consumption.

Gross domestic product probably increased about a quarter of a percent in the three months through December, compared with 0.3 percent in the third quarter, the Federal Statistics Office said last month. Economists predict quarterly growth was 0.4 percent at the end of last year and will accelerate to 0.5 percent at the beginning of 2014.

Heidelberger Druckmaschinen AG, the world’s largest printing-press maker, said yesterday that its sales volume will drop in the fiscal year because of slow investment. At the same time, Siemens AG, Europe’s largest engineering company, reported earnings on Jan. 28 that beat analysts’ estimates in the fourth quarter. Osram Licht AG, the world’s second-biggest lighting company, said the next day that it forecasts a sharp rise in income and sales this fiscal year.

The European Central Bank’s Governing Council is gathering in Frankfurt today to assess the economic outlook for the euro area. Policy makers will keep the key interest rate unchanged at a record-low 0.25 percent, according to a separate survey. The ECB will announce its decision at 1:45 p.m. local time.

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