German Factory Orders Rose for a Fifth Month in July
German factory orders rose for a fifth month in July, helping the recovery in Europe’s largest economy gain traction.
Orders, adjusted for seasonal swings and inflation, advanced 3.5 percent from June, when they gained 3.8 percent, the Economy Ministry in Berlin said today. Economists predicted an increase of 2 percent, the median of 41 estimates in a Bloomberg News survey showed. Orders were still 19.8 percent lower than a year earlier.
Germany unexpectedly exited its worst recession since World War II in the second quarter as improving global trade boosted demand for exports and the government’s 85 billion-euro ($122 billion) package to stimulate domestic spending kicked in. Bundesbank President Axel Weber said last week it’s unclear whether the recovery can be sustained.
“German order books are filling again,” said Carsten Brzeski, an economist at ING Groep in Brussels. “The outlook for the German economy looks bright as it can still benefit from the best of both worlds: stimulus-driven private consumption and blossoming industrial activity.”
The increase in orders in July was driven by a 10.3 percent jump in domestic demand. Local orders for investment goods surged 17.2 percent, today’s report showed. While foreign orders declined 2.3 percent overall, there was a 5.1 percent gain in orders for intermediate goods from abroad.
Fiscal Stimulus
“Based on the significant increase in orders, industrial production should increase in the third quarter,” the Economy Ministry said.
Governments worldwide have announced about $2 trillion in economic stimulus programs to help rekindle economic growth. Measures introduced by German Chancellor Angela Merkel’s government, which faces a national election on Sept. 27, include infrastructure spending and a 2,500-euro payment to people who trade in their old car and buy a new one. The “cash-for- clunkers” fund ran dry last week.
While Weber predicted the third quarter “will again signal a strong pick-up,” boosted by the car scrappage program, he said a stronger global recovery is needed for Germany to overcome all its economic weaknesses.
The Bundesbank expects unemployment to rise to 10.5 percent in 2010 from 8.3 percent today as companies cut costs to restore profit. That may damp consumer spending and undermine the recovery.
The Organization for Economic Cooperation and Development last week cut its estimate for the recession in the world’s leading industrialized economies, and a senior International Monetary Fund economist said the lender plans to adjust its global growth forecast for 2010 to “just below” 3 percent from a July prediction of 2.5 percent.
Germany’s government has indicated its forecast for a 6 percent economic contraction this year may now be too pessimistic. German investor and business confidence increased more than economists expected in August and the country’s service industries expanded for the first time in 11 months.
Filed under: economics by Wolf