German Factory Orders Surge Most Since 2014 on Investment

  • Orders rose 5.2% in December vs. estimated pickup of 0.7%
  • Demand for big-ticket items was significantly above average

How Germany Makes the Most of a Weaker Euro

German factory orders rose the most in two and a half years in December amid a surge in investment-goods demand, suggesting that the strong run of Europe’s largest economy at the end of the year is set to continue.

Orders, adjusted for seasonal swings and inflation, gained 5.2 percent from November, when they fell a revised 3.6 percent, data from the Economy Ministry in Berlin showed on Monday. That’s the highest since July 2014. The typically volatile reading compares with a median estimate for a 0.7 percent increase in a Bloomberg survey. Orders were up 8.1 percent from a year earlier.

Economic expansion accelerated in the final quarter of 2016, and a jump in orders in the three months bodes well for manufacturing at the start of this year. Companies from Siemens AG, Europe’s largest engineering company, to Airbus Group SE, which assembles most of its single-aisle planes in Hamburg, won contracts in December.

While the Bundesbank predicts job creation should continue as confidence improves, growing uncertainty in the region and beyond risks hurting Germany’s export-focused manufacturing sector. At the same time, accelerating inflation threatens to slash consumers’ purchasing power.

“All recent data point to a very strong start for 2017 in Germany and in the euro area after a very good fourth quarter,” said Julian Trahorsch, an economist at Landesbank Baden-Wuerttemberg in Stuttgart. While he estimates the economy expanded 0.6 percentage point in the three months through December, Trahorsch said he’s not “overly optimistic for 2017 because there are several major headwinds for the economy.”

Germany will report gross-domestic-product data on Feb. 14, after the statistics office said at the start of the year that growth accelerated to around half a percentage point from 0.2 percent in the third quarter. The economy grew 1.9 percent in 2016, the most in five years.

Bulk Orders

The Economy Ministry said bulk orders were significantly above average. Demand for investment goods from the euro area surged 19.5 percent in December, pushing export orders up 10 percent from November. Domestic orders rose 6.7 percent on the month.

Orders increased 4.3 percent in the fourth quarter from the previous three months. “This signals a further revival of momentum in manufacturing in the winter half,” the ministry said. It will publish industrial-production data for December on Tuesday.

The euro extended declines after the report. It was down 0.3 percent at $1.0746 at 10:19 a.m. Frankfurt time.

Data on Monday also showed construction activity slowed in January, with a Purchasing Managers’ Index for the sector falling to 52 from 54.9 in December. A reading above 50 indicates expansion.

— With assistance by Andre Tartar, and Kristian Siedenburg

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