Germany shrugs off surprise decline in factory orders

FACTORY orders in Germany fell unexpectedly in August in a sign that Europe’s largest economy is vulnerable to weaker growth in China and other emerging markets.

Orders, adjusted for seasonal swings and inflation, dropped 1.8% after decreasing a revised 2.2% in July, data from the economy ministry in Berlin showed yesterday. The typically volatile number compares with a median estimate of a 0.5% increase in a Bloomberg survey. Orders rose 1.9% from a year earlier.

A China-led slowdown in emerging markets that threatens Germany’s export-oriented economy is exacerbated by an emissions scandal at Volkswagen (VW) that could affect as many as 11-million cars globally. Still, business confidence unexpectedly increased last month as the economy benefited from strengthening domestic demand on the back of record employment, rising wages and low inflation.

“While order data in August were overall disappointing, it’s too early to fall into a panic about the economy because orders from within the country and the currency union amid all the volatility still point upward,” said Stefan Kipar, an economist at Bayerische Landesbank in Munich. “But high uncertainty about China and the cooling of the Chinese economy has left its mark.”

Excluding big-ticket items, orders dropped 2.1% in August, the ministry said. Domestic factory orders fell 2.6% as demand for investment goods slumped. The drop in orders was exaggerated by school holidays, it said. A bright spot was the rest of the euro area, where demand for capital goods jumped.

The euro was little changed after the report and traded at $1.1205 in Frankfurt yesterday morning. The benchmark DAX index was up 0.2% at 9,838.

Company investment in the euro area will expand at a moderate pace in the coming quarters, according to forecasts by Germany’s Ifo institute, France’s national statistics office Insee and Italy’s statistics agency Istat. The institutes predict economic growth of 0.5% this quarter and next as private consumption benefits from an improving labour market.

While the latest developments in emerging markets bear risks for the euro region, a pronounced slowdown of economic activity is “highly unlikely”, they said.

Waning Chinese industrial demand has prompted Henkel to announce the removal of 1,200 jobs at its adhesives unit as it adapts capacity. While the brunt of the layoffs will be borne in Asia, 250 jobs will be cut in Europe and 100 in Germany.

August factory orders do not yet reflect the effect of VW’s cheating on US emissions tests revealed last month. Chairman-designate Hans Dieter Poetsch warned that the scandal could pose “an existence-threatening crisis” for the firm.