As the firm support from external demand disappeared in July, German factory orders logged its biggest fall since February 2009.
Factory orders fell unexpectedly by 2.2% month-on-month in July after recording a revised 3.6% increase in June, the Federal Ministry of Economics and Technology said on Tuesday. Expectations were for a 0.5% growth.
A monthly increase of 6.6% seen in foreign demand in June turned negative in July. Export orders dropped 3.7% during July. This decline was largely led by a 6.1% drop in demand from Eurozone. Domestic demand slipped 0.3%, following a 0.1% rise.
"However, the drop is no reason to worry," said ING Bank NV's Carsten Brzeski. Deriving any double-dip ideas from today's numbers would be exaggerated and very premature, the economist added. Even after July's drop, order books are still richly filled and, at least for now, German manufacturers are rather concerned about increasing backlogs than a lack of new orders.
Capital goods orders decreased 5.5% compared to a 6.6% rise in June. Consumer goods demand slipped 1% versus June's 0.6% growth. By contrast, orders for intermediate goods rose 2.5% in July.
On a yearly basis, factory orders growth slowed notably in July. Total factory orders after adjusting working days advanced 17.7%, slower than the 24.7% growth in June. The latest figure was weaker than the consensus forecast of 20.6%. The non-adjusted index for orders grew 14% in July, sharply down from June's 28.5% increase.
Today, the ministry said the overall trend in the sector is directed upward. The ministry is slated to issue July industrial production data on September 8.
July's figure was distorted to the downside by the summer holidays falling early this year, Commerzbank's Ralph Solveen noted. "Today's figures do not make any real difference to the upward trend in German industry, although this trend is likely to flatten in the months ahead," the analyst said. The trend in order intake should continue to point upwards, he noted.
Recent Markit Economics' Purchasing Managers survey also confirmed a slower growth in combined output of German manufacturing and service sectors in August. While, softer new orders growth left manufacturing activity at a six-month low, services activity growth hits a three-year high. The survey revealed that the deceleration in total new order growth in manufacturing was due to a weaker contribution from export demand in August.
The largest eurozone economy had expanded 2.2% in the second quarter, which was the biggest expansion since its '1991 reunification'. The state-owned development bank KfW forecast the economy to expand at a record pace of 3.6% this year. At the same time, Bundesbank estimates only 3% expansion for 2010.
For comments and feedback: editorial@rttnews.com