German factory orders fell 1.3% month-over-month in August, driven by Europe's ongoing debt crisis, reduced consumer spending

Allison Oesterle

Allison Oesterle

Oct 5, 2012 – Bloomberg LP

NEW YORK , October 5, 2012 () – German factory orders declined more than economists forecast in August as Europe’s debt crisis damped the outlook for economic growth.

Orders, adjusted for seasonal swings and inflation, fell 1.3 percent from July, when they rose 0.3 percent, the Economy Ministry in Berlin said today. Economists forecast a 0.5 percent drop, according to the median of 31 estimates in a Bloomberg News survey. From a year earlier, orders retreated 4.8 percent when adjusted for work days.

Europe’s largest economy is cooling as governments and consumers across the euro region reduce spending, denting demand for German goods and prompting companies to delay investments. Business confidence unexpectedly fell to the lowest in more than 2 1/2 years in September. At the same time, rising wages and unemployment at a two-decade low are helping to limit the slowdown by bolstering household spending.

“The situation in Germany is getting worse,” said Christian Ott, an economist at Natixis in Frankfurt. “The economy is suffering as exports have weakened. However, private consumption remains strong and that’s why I don’t see a recession on the horizon.”

Domestic factory orders fell 3 percent from July, today’s report showed. Export orders were unchanged, with sales to other euro-area countries rising 2.4 percent and orders from abroad dropping 1.4 percent. Investment goods orders declined 3 percent.


Economic Slowdown


The number of bulk orders in August was well below average, the ministry said in a statement.

“In an overall weak economic environment, orders from German industry have, as expected, also weakened,” the ministry said. “Activity in the industrial sector may remain restrained for the time being.”

Economic growth slowed to 0.3 percent in the second quarter from 0.5 percent in the first. By contrast, the euro-area economy contracted 0.2 percent in the three months through June. At least five of the bloc’s 17 members are already in recession.

Infineon Technologies AG, Europe’s second-biggest semiconductor maker, on Sept. 25 predicted sales and profitability will decline in the three months through December as clients cut spending amid the economic slowdown.

Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, in August reported its first drop in quarterly profit in almost three years and warned that Europe’s debt crisis could cast further clouds on the global growth outlook.


ECB Action


European Central Bank President Mario Draghi last month announced details of an unlimited bond-purchase program designed to regain control of interest rates in the euro area and fight speculation of a currency breakup.

The purchases hinge on struggling countries requesting aid from Europe’s rescue funds. Spain and Italy, which had pushed for ECB intervention to bring down borrowing costs, are now reluctant to ask for aid because of the conditions attached.

Stock markets rose after Draghi’s announcement on Sept. 6. German stocks are up 24 percent this year, outperforming their European counterparts.

Continental AG, Europe’s second-largest tiremaker, raised its 2012 revenue and profit outlook in August after second- quarter profit jumped on lower raw material costs.

“Considering the circumstances, Germany’s economy has so far performed fantastically,” said David Milleker, chief economist at Union Investment GmbH in Frankfurt. “The question is what will happen to Germany if the situation in the rest of the world continues to get worse.”




--Editors: Matthew Brockett, Andrew Atkinson


To contact the reporter on this story: Stefan Riecher in Frankfurt at sriecher@bloomberg.net


To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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