German factory orders declined unexpectedly in May, largely due to subdued demand from the euro area, mirroring fragility in the nascent recovery in the largest Eurozone economy. The decline in turn potentially damped hopes of a recovery seen at the end of this year in the 17-nation bloc.
Factory orders slipped 1.3 percent from a month ago, when it declined by a revised 2.2 percent, a report from the Federal Ministry of Economics and Technology showed Friday.
This was the second consecutive fall in orders. Although the decline was in contrast to the 1.2 percent growth expected by economists, the pace of decline slowed from April.
Domestic orders dropped 2 percent in May and foreign demand slid 0.7 percent due to a 3.9 percent fall in orders from euro area.
The economy ministry said orders were quite volatile over recent months. Excluding large orders, new orders tend to be directed upwards.
On a yearly basis, overall factory orders fell by an adjusted 2 percent, confounding expectations for a 0.1 percent rise. The decline follows a 0.3 percent drop in April.
Breakdown of the monthly indicator showed that orders for intermediate goods edged down 0.1 percent and that for capital goods dropped 1.8 percent. The decline in orders for consumer goods was more pronounced, down 3.1 percent.
Today's new orders illustrate that the German industry still has difficulties to return to full strength, ING Bank economist Carsten Brzeski assessed. Inventory reduction and reasonably filled order books ensure a gradual pick-up in industrial production, but the medium-term outlook is not looking rosy, he added.
The central bank expects the economy to pick up strongly in the second quarter, but sees a slowdown in the momentum over the summer. Bundesbank forecast 0.3 percent growth this year, before accelerating to 1.5 percent in 2014.
According to the recent Purchasing Managers' survey, the private sector expanded only marginally in June.
Nonetheless, the GfK survey indicates that German consumer sentiment is set to climb to its highest level in almost six years in July. Moreover, unemployment declined by 12,000 in June from a month earlier, despite harsh job conditions in the rest of Eurozone.
by RTT Staff Writer
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