Clouds build over German economy as factory orders decline

The skies could be darkening over the German economy, Europe's biggest, with factory orders, a key measure of demand for goods made in Germany, falling for the third month in a row in September, data showed on Thursday.

According to provisional data compiled by the economy ministry, industrial orders fell by 1.7 percent month-on-month in September, following declines of 1.8 percent in August and 2.2 percent in July.

Analysts polled by financial services firm FactSet had pencilled in an increase of 1.0 percent for September.

The decline was attributable to weaker foreign demand for German-made goods.

Export orders fell by 2.4 percent, while domestic orders slipped by 0.6 percent, the ministry calculated.

Orders from the eurozone tumbled by 6.7 percent, while orders from outside the single currency area edged up 0.7 percent.
Analysts said the data were disappointing, in view of continued upbeat sentiment indicators, but did not suggest that economic recovery had come to an end.

"Taking the third quarter as a whole, this was the worst performance in the last four years," said UniCredit economist Andreas Rees.

- 'No reason to panic' -

"But despite these ugly headline figures, we think that there is no reason to panic."

The data had been distorted by big-ticket items and calendar effects, he suggested.

"In our view, the latest surprisingly weak figures do not herald a fundamental turnaround in the German economy. It is a bump in the road but nothing more," Rees concluded.

BayernLB economist Christiane von Berg agreed.

"It would be premature to start talking of a lasting deterioration in the outlook for the German manufacturing sector," she said.

By contrast, Commerzbank economist Ralph Solveen said the data were a signal "in the coming months economic growth in Germany will remain sluggish at best."
Postbank economist Marco Bargel noted that complementary industrial output data were scheduled to be published on Friday and if they were similarly disappointing, they could weigh on overall gross domestic product (GDP) growth in the third quarter, due out next week.

Nevertheless, Bargel insisted that the factory orders numbers suggested that recovery was "taking a breather, but hasn't come to an standstill."

Overall conditions in the euro area remained favourable, the expert said, pointing to low energy prices, the weak euro and the robust labour market.

"Obviously, it would be premature to panic after a single new order data release. However, the fact that new orders have dropped for three consecutive months suggests that our positive take on the German industry got some scratches," said ING DiBa economist Carsten Brzeski.

"All in all, a mixed picture for the industry with a downward bias. At the moment, strong domestic demand should more than offset the weakening of industrial activity but today's data suggest that the industry should be prepared for stormier weather," he warned.