Bloomberg News

German Factory Orders Rebound in April on Investment Goods

June 07, 2011

(Updates with economist quote in fourth paragraph.)

June 7 (Bloomberg) -- Factory orders in Germany, Europe’s largest economy, rebounded in April from a slump in the previous month, led by stronger demand for investment goods.

Orders, adjusted for seasonal swings and inflation, rose 2.8 percent from March, when they plunged a revised 2.7 percent, the Economy Ministry in Berlin said in a statement today. Economists had forecast a gain of 2 percent, according to the median of 37 estimates in a Bloomberg News survey. In the year, orders rose 10.5 percent, when adjusted for work days.

Germany’s recovery is broadening as companies boost investment and hiring to meet booming export demand from emerging Asia, even as surging energy prices are sapping households’ spending power and countries including Greece toughen austerity measures. While first-quarter growth was probably “overstated,” the economy is in a “good condition,” Bundesbank President Jens Weidmann said on May 23.

“Clearly, there is no reason for the German industry to grumble,” said Carsten Brzeski, an economist at ING Group in Brussels. “Production is firing on all cylinders and richly filled order books give little cause for serious concerns. With an increasing lack of highly-skilled workers and production bottlenecks, German companies are facing a luxury problem of too many rather than too few orders.”

Railway Orders

The share of big-ticket items was “above average” and the order intake remained positive in the three months through April, even though momentum “flattened somewhat,” the ministry said today. It had previously reported an order slump of 4 percent for March.

“In April, we saw the largest bulk order in Germany’s railway history,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “That probably boosted the increase in orders. Before long, we’ll fall back to a more normal speed of expansion but that certainly won’t be a tragedy.”

Siemens AG, Europe’s largest engineering company, secured an order from Deutsche Bahn AG for up to 300 trains, the companies said on May 9. The potential order volume for the first 220 trains totals about 6 billion euros ($8.8 billion).

Orders of investment goods jumped 4.9 percent in April from a month earlier and demand for consumer goods rose 3.6 percent, while orders of intermediate goods dropped 0.3 percent, today’s report showed. Foreign demand increased 3.4 percent and domestic orders gained 2.1 percent from March.

Powering Expansion

Germany is powering the euro region’s expansion. German gross domestic product may rise 2.6 percent this year, after record growth of 3.6 percent in 2010, the European Commission said on May 13. In the euro area, GDP will increase 1.6 percent, with Greece and Portugal contracting, it said.

The German economy may struggle to gather strength after expanding at the fastest pace in almost a year in the first quarter. While unemployment fell in May for a 23rd straight month, pushing the jobless rate to 7 percent, and business confidence held steady in May, investor sentiment declined. Manufacturing growth also weakened last month.

“Growth is likely to ease somewhat in the foreseeable future,” the Frankfurt-based Bundesbank said in its monthly report on May 20. “Output growth was clearly lifted during the reporting period by backloading and catching-up effects.”

Companies have relied on faster-growing economies as European governments cut spending to fight the region’s fiscal crisis. BASF SE, the world’s largest chemical company, will draw most of its growth from Asia in coming years, Deputy Chief Executive Officer Martin Brudermueller said on May 26.

Price Pressures

Crude oil prices have jumped 8.5 percent this year, adding pressure on companies to raise prices. Inflation has breached the European Central Bank’s limit in every month since December, prompting policy makers to raise interest rates for the first time in almost three years in April. Officials meeting in Frankfurt on June 9 will probably keep the benchmark at 1.25 percent, a Bloomberg survey shows.

“Companies are increasingly suffering from commodity price-driven inflation and are becoming increasingly willing to pass on costs,” said Ulrike Rondorf, an economist at Commerzbank AG in Frankfurt. “In Germany, the recovery is providing some room to do that. The backlog of orders is still very high, which suggests that industrial production will continue to rise robustly in the coming months.”

--With assistance from Kristian Siedenburg in Budapest. Editors: Simone Meier, Jeffrey Donovan

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

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


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