German industry orders rise at strongest pace in 30 months

Higher demand for capital goods at home and abroad drove the biggest monthly increase in German industrial orders in about 30 months in December, suggesting factories will support growth in Europe’s biggest economy in the coming months.

The much stronger than expected data, released by the economy ministry in Berlin, gave some reassurance that Germany's economic upswing will carry into 2017 despite growing political uncertainties such as a protectionist US trade agenda.

"What a sensationally strong quarter in the manufacturing sector", Sal Oppenheim economist Ulrike Kastens said, adding that the figures were pointing to an overall economic recovery in the euro zone. "Despite the political uncertainties, the German economy is showing a more than robust development," Kastens said, adding she now expected quarterly growth of around 0.6 per cent in the first quarter after 0.5 per cent in the final quarter of 2016. Contracts for goods 'Made in Germany' were up by 5.2 per cent on the month, the economy ministry said. That was the biggest monthly increase since July 2014 and was far stronger than the Reuters consensus forecast for a rise of 0.5 per cent.

Euro demand

Domestic demand jumped by 6.7 per cent while foreign orders increased by 3.9 per cent, with bookings from euro zone countries soaring by 10.0 per cent. The data for November was revised down to a fall of 3.6 per cent from a previously reported drop of 2.5 per cent. Still, over the full fourth quarter, industrial orders rose by 4.3 per cent on the quarter, the economy ministry said.

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“This signals a continued upswing in the industrial sector over the winter,” the ministry said. The overall increase was driven by a jump in demand for capital goods of 9.7 per cent, helped by strong bookings from both domestic customers and euro zone countries. The strong orders figures followed mixed data after German business morale unexpectedly fell in January, signalling a more downbeat assessment of the outlook for Europe’s largest economy.

A survey among German purchasing managers showed last week that private sector growth slowed slightly in January, with weaker activity among services firms limiting overall economic expansion. Strong private consumption, increased state spending on refugees and higher construction investment helped the German economy to grow by 1.9 per cent in 2016 - the strongest rate in half a decade. For this year, the government expects an economic slowdown to 1.4 per cent due to fewer workdays and weaker exports.

ING economist Carsten Brzeski suggested viewing the data with caution as it is a highly volatile indicator but added: "Against the background of Brexit and Trump, today's data suggest that the German industry could shift into a higher gear in the first quarter of 2017," he said.

Reuters