German Factory Orders Extend Slide as Economic Worries Build

(Bloomberg) -- German factory orders unexpectedly dropped for a fourth month in April, raising the prospect that an economic slowdown at the start of the year may be worsening.

Orders, adjusted for seasonal swings and inflation, slid 2.5 percent, the Economy Ministry said Thursday, compared with forecasts for an increase of 0.8 percent. From a year earlier, orders slipped 0.1 percent, the first annual decline since 2016.

The continued weakness even in the euro area’s largest economy will cast a shadow over the European Central Bank’s policy meeting next week, when officials plan to discuss the future of their stimulus program. ECB Chief Economist Peter Praet signaled on Wednesday that the first formal talks on when to halt bond buying are imminent.

The German data, which ING called a “cold shower” for the economy, showed that orders from the euro zone fell almost 10 percent. Capital goods plunged 16 percent.

While trade-war threats and political turmoil in Italy have affected sentiment indicators lately, “I wouldn’t have expected for that to translate to hard data such as factory orders,” said Jens Kramer, an economist at NordLB in Hanover. “Overall growth is expected to have rebounded in the second quarter, but there may be a need to revisit those forecasts.”

The euro briefly pared gains after the report, and was trading 0.3 percent higher at $1.1807 at 8:58 a.m. Frankfurt time.

Read more: The ECB shows it won’t be hostage to Italy

The Economy Ministry tried to downplay the bad news, saying the order backlog at factories remains “very high.” It also said it isn’t clear how much global uncertainty is affecting orders.

“To what extent uncertainties play a role, especially from the external environment, is difficult to assess,” the ministry said in a statement.

After the strongest economic expansion in a decade last year, the currency bloc has taken a blow to confidence amid an escalating trade war with the U.S. and recent political turmoil in Italy that spooked bond markets. IHS Markit’s gauge of private-sector activity declined in May, and a measure of investor confidence by Sentix slumped to the weakest since 2012.

The euro area’s statistics office will publish a breakdown of first-quarter gross domestic product at 11 a.m. in Luxembourg.

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