Stronger factory orders offer ‘rays of sunshine’

German factory orders jumped in February, driven by buoyant domestic and export demand, suggesting that rising confidence in Europe's biggest economy may finally be reaching the real economy, analysts said on Friday.

Stronger factory orders offer 'rays of sunshine'
Photo: DPA

Industrial orders jumped by 2.3 percent in February compared with January, making up for the 1.6-percent drop seen the previous month, the economy ministry said in a statement.

Analysts polled by Dow Jones Newswires had been pencilling in a more modest gain of 1.2 percent for February.

“Growth in domestic orders accelerated noticeably by 2.2 percent and orders from overseas offset the previous month’s drop with an increase of 2.3 percent,” the ministry said.

The upward momentum was fuelled primarily by a sharp increase of 3.5 percent in orders for capital goods. Orders for semi-finished goods rose by 0.9 percent while orders for consumer goods edged up by 0.1 percent.

Using a two-month comparison to iron out short-term fluctuations, the ministry calculated that orders in January and February combined inched 0.1 percent higher compared with the same period a year earlier.

Analysts were encouraged by the unexpected rise in factory orders.

This “adds to today’s picture of the German industrial sector turning the corner after the dire end of 2012,” said Natixis economist Johannes Gareis.

“Germany’s little V-shaped recovery in the first quarter is on track, at least until February,” agreed Berenberg Bank economist Christian Schulz.

“The recovery in ‘soft’ confidence data has reached ‘hard’ data such as retail sales and industrial orders,” he said.

And German resilience “may turn out to be good news for the eurozone crisis countries, as their chances of exporting their way out of trouble improve with higher German demand,” the expert said.

ING DiBa economist Carsten Brzeski said the data represented “some rays of sunshine.”

The rise was “good news, as it shows that the industrial backbone is not running out of steam, but it is no reason to become overly cheerful,” Brzeski said.

UniCredit analyst Andreas Rees saw the data as “the first unambiguous signs of a turnaround in German hard data. It is not only the strong increase in the headline figure per se which is encouraging but especially its (balanced) composition.”

The economy ministry noted that the number of bulk or big-ticket orders — which tend to distort the headline figure — was slightly below average.

“Furthermore, both domestic and foreign demand rose to nearly the similar extent, thereby putting the German economy on a solid footing,” Rees said.

“To be crystal-clear, we think that today’s data is not a one-off,” he insisted.


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German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.