German Factory Orders Drop After Demand Surged in Late 2017

(Bloomberg) -- German factory orders dropped at the start of 2018 after demand for big-ticket items bloated books at the end of last year.

Orders fell 3.9 percent in January after rising a revised 3 percent the previous month, the Economy Ministry in Berlin said on Thursday. That’s the steepest decline in a year for the volatile series, and was far bigger than economists had forecast. Orders were up 8.2 percent year-on-year.

The data come as European Central Bank officials meet in Frankfurt to discuss monetary policy. They will announce their decision at 1:45 p.m., with President Mario Draghi addressing journalists 45 minutes later.

While annual order growth points to the underlying strength of Germany’s economy, recent indicators have hinted at a modest slowdown in momentum. Business confidence slipped last month as companies increasingly face bottlenecks, and a gauge for manufacturing and services dropped from a seven-year high.

Still, the Bundesbank has expressed confidence in the outlook. In its latest monthly report, it said high levels of capacity utilization at German factories should boost companies’ readiness to invest in new facilities, while “favorable prospects for employment and noticeably increasing pay” are bolstering consumption.

At ING-Diba in Frankfurt, economist Carsten Brzeski says there’s no reason to be pessimistic about the orders numbers due to their erratic monthly moves. “With sound fundamentals, filled order books and low inventories, German industry does not look at risk of faltering anytime soon,” he said on Thursday.

Global sentiment indicators point to a continued economic upswing, from which German manufacturing is set to benefit, the Economy Ministry said. Demand for consumer goods rose 2.4 percent in January, driven by the euro area. Orders for basic and investment goods declined.

--With assistance from Andre Tartar and Kristian Siedenburg

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint

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