German Factory Orders Soar by 1.0%

In terms of price and seasonal adjustments, German factory orders recorded a 1.0% rise in August after rising by 0.3% in the previous month. Its performance was above market forecast of a 0.3% growth and its highest rise since March. There was an annual growth of 2.1% and with the exception of major orders, there was a 1.6% monthly gain. With a modest gain of 2.9% in consumer goods, capital goods orders posted a 0.3% rise from its July figure. On a monthly basis, domestic orders increased 2.6%, while overseas orders declined 0.2%. Within the overseas component, orders from other Eurozone countries rose 4.0%, while orders from countries outside the Euro area declined 2.8%.

ING economist Carsten Brzeski says the numbers should bring some relief for German industry, where new orders have been stagnating since last winter. “Today’s numbers bring some relief for German industry but are still far too little to become overly optimistic about the outlook for industrial production,” he said at ING-Diba AG in Frankfurt. “In fact, German industry is still running low on fuel. New orders have literally been stagnating since last winter and even after today’s increase, domestic orders are still under-performing. Unless we see an entire series of similar data in the coming months, German industry will have troubles shifting to a higher gear.”

The latest orders data comes on the trail of a rise in German business sentiment to its highest level in more than 2 years in September, a sign that corporate worries surrounding the aftermath of the UK’s referendum to exit the European Union are easing. Still, the number of Germans unemployed unexpectedly rose last month for the first time in more than a year, and the Bundesbank toned down its outlook, pointing to slower growth in the third quarter.

The price-adjusted turnover in manufacturing rose 4.1% on the month, which was the largest increase since 1991. This followed a 1.5% gain seen the previous month. The data will help underpin confidence in the domestic economy with expectations of stronger consumer demand and the increase in orders from elsewhere in the Eurozone will also spark some hopes of an underlying recovery in the region.

The decline in overseas orders will, however, cause some significant concerns, especially as the Euro is still relatively competitive in international terms and there has been evidence of a stronger global economy. There will be some speculation that Sterling weakness following the EU referendum has damaged orders from the UK.

Market reaction was limited with EUR/USD testing bids just below the 1.1200 level, while bunds opened fractionally higher.