German Orders Gain Most in Eight Months in Recovery Sign

By Jeff Black - Aug 6, 2013

German factory orders increased by the most in eight months and U.K. industrial production beat forecasts in June, adding to evidence of a nascent recovery in Europe. Italy’s economic contraction slowed.

German orders, adjusted for seasonal swings and inflation, increased 3.8 percent from a month earlier, driven by contracts for bulk items, the Economy Ministry in Berlin said today. Economists forecast a gain of 1 percent in June, according to the median of 42 estimates in a Bloomberg News survey. U.K. output climbed 1.1 percent from May after stagnating for three months, the Office for National Statistics said in London.

European Central Bank President Mario Draghi said last week that a “tentative” stabilization in the 17-nation euro area, which excludes the U.K., is under way after at least six quarters of contraction. That may benefit Germany, the region’s biggest economy, as its export-focused manufacturers boost European sales to counter a slowdown in Asia. The country’s leader, Angela Merkel, faces parliamentary elections next month.

“The above-average big-ticket orders mean that the June number overstates the real economic dynamic,” said Stefan Kipar, an economist at BayernLB in Munich. “Still, given the discernible upwards movement in the confidence indicators, continued economic rejuvenation can be expected for the second half of the year.”

Paris Air Show

The euro traded at $1.3275, up 0.1 percent, at 1:45 p.m. in Frankfurt. The pound was little changed at $1.5359. The Stoxx Europe 600 Index gained 0.1 percent to 305.09.

German factory orders advanced 4.3 percent from a year ago, when adjusted for the number of working days, today’s report showed. Basic-goods and consumer-goods orders both dropped 0.2 percent from the prior month.

Orders for investment goods climbed 6.8 percent from May, led by a 20.2 percent gain in orders from within the euro zone. The increase for the single-currency bloc was the largest since June 2007 and partly reflects contracts signed at the Paris Air Show last month, the ministry said.

Pan-European planemaker Airbus SAS, a unit of European Aeronautic, Defence & Space Co., received orders for 466 planes worth $69 billion at the Paris Air Show in June this year. Based on the number of orders and deliveries, Airbus’s first-quarter book-to-bill ratio on narrow-body jets was the highest since September 2011, according to data compiled by Bloomberg.

U.K. Output

“A rebound in factory orders reflects a recovery in demand for airplanes and ships,” said Ulrike Rondorf, an economist at Commerzbank AG in Frankfurt. “For the second half of the year, an increase in demand for investment goods would be decisive, since it would be a sign that entrepreneurs have put the crisis behind them.”

U.K. industrial production beat the 0.7 percent increase forecast in a Bloomberg News survey. Factory output jumped 1.9 percent, also exceeding economists’ predictions.

After expanding 0.6 percent in the second quarter, the U.K. economy is showing signs of gaining traction, with manufacturing and construction and services all strengthening in July and house prices rising. Bank of England Governor Mark Carney will tomorrow present the central bank’s new economic forecasts as well as officials’ assessment of using forward guidance.

Italy Recession

“The strength in manufacturing could be a sign that what has so far been a sugar rush of low interest rates and rising house prices is broadening out to more sustainable sources of growth,” said Rob Wood, an economist at Berenberg Bank in London and a former U.K. central bank official. “The BOE’s job is to ensure the stimulus is not withdrawn prematurely and this recovery continues to blossom.”

The euro area’s emergence from recession isn’t guaranteed. Gross domestic product probably stagnated in the three months ended June, according to economists surveyed by Bloomberg last month. The European Union’s statistics office in Luxembourg reports second-quarter figures on Aug. 14.

Italy’s recession, the country’s longest since World War II, eased in the period. The nation’s economy contracted 0.2 percent from the first quarter when it fell 0.6 percent, national statistics institute Istat said in a preliminary report published in Rome today. Economists predicted a decline of 0.4 percent, according to the median of 24 forecasts in a Bloomberg News survey. From a year earlier, output fell 2 percent.

German Election

German Chancellor Angela Merkel will seek a third term as leader on Sept. 22 on the strength of shielding her country from the worst effects of the region’s debt crisis. A survey published Aug. 2 by Forschungsgruppe Wahlen showed support for the opposition Social Democratic party up 1 percentage point to 27 percent, while Merkel’s Christian Democratic-led bloc slid to 40 percent. An Emnid poll showed no movement, with Merkel’s party retaining its 15-point lead.

While the Bundesbank said last month that the German economy expanded “strongly” in the second quarter, it also warned of signs of a slowdown. The Frankfurt-based central bank in June cut its 2013 growth outlook to 0.3 percent from 0.4 percent. The economy in China, Germany’s third-biggest trading partner in 2012, has cooled for the past two quarters.

Continental AG (CON), Europe’s second-largest car-parts maker, on Aug. 1 scaled back its sales forecast for this year, saying the region’s tire market isn’t recovering as expected. Continental now expects revenue to increase 4 percent, down from an earlier prediction of 5 percent.

At the same time, Hugo Boss AG (BOSS) reported second-quarter earnings last week that beat estimates. Sales in Europe climbed 14 percent, beating a 7 percent increase in Asia. European countries accounted for 69 percent of German exports last year, while 16 percent of shipments went to Asia, according to the Federal Statistics Office in Wiesbaden.

“The worst could be behind us” in the euro region, said Aline Schuiling, an economist at ABN Amro Bank NV in Amsterdam. “The German manufacturing sector should be the first to profit from a recovery in the euro area, and demand from there is still more important than that from Asia.”

To contact the reporter on this story: Jeff Black in Frankfurt at jblack25@bloomberg.net

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