Prospects for German Economy Are Gloomy Even as Orders Increase
German Factory Orders Rebound on Foreign Investment-Goods Demand
(Bloomberg) --
A rebound in German factory orders in June might be as good as the news gets this week from Europe’s largest economy.
Manufacturing is already experiencing its worst slump in seven years, and declining business confidence has raised the risk of a recession. While orders jumped 2.5%, erasing the decline in May, industrial production data due on Wednesday are likely to have shown a drop.
“Germany’s economy is highly dependent on exports, and that’s what’s hitting the German economy now,” Marcel Fratzscher, president of the DIW German Institute for Research said on Bloomberg Television. “If the trade conflicts persist for many more years, this will hit Germany very hard.”
There’s no end in sight for now. After the U.S. announced its biggest tariff hike yet on imports from China, the Asian country responded by letting its currency tumble to the lowest in more than a decade. Their escalating trade war is spreading uncertainty across Germany’s business world, with blue-chip companies from Continental to Lufthansa warning the tensions are crimping corporate results.
June’s gain in factory orders was bolstered by demand for investment goods from outside the euro area. Orders from within the country and the euro area declined.
| June | May | |
|---|---|---|
| Domestic orders | -1.0% | 0.9% |
| Foreign orders | 5.0% | -3.9% |
| euro area | -0.6% | -1.4% |
| non-euro area | 8.6% | -5.3% |
The Economy Ministry, which publishes the data, said the downturn in orders slowed markedly in the second quarter. “But business climate indicators suggest the turnaround in manufacturing is still ahead.”
Investor confidence fell to its lowest level since 2009 in August, and unemployment last declined in April. The Bundesbank predicts the economy contracted in the second quarter. A first estimate is due to be published on Aug. 14.
Weakness in Germany has already left its mark on the euro-area economy. European Central Bank officials have signaled they will likely provide more monetary stimulus as early as in September.
--With assistance from Kristian Siedenburg, Harumi Ichikura, Catarina Saraiva, Eddie Spence, Matthew Miller and Anna Edwards.
To contact the reporter on this story: Kristie Pladson in Frankfurt at kpladson@bloomberg.net
To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow
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