German industrial orders in 'extraordinary' leap

6th December 2011, Comments 0 comments

Industrial orders in Germany rose sharply in October, official data showed on Tuesday, raising hopes that Europe's top economy is standing up to the ongoing turmoil in the eurozone.

In a result that one analyst called "extraordinary", orders were up by 5.2 percent on the month in October, following a decline of 4.6 percent in September, according to the economy ministry.

This smashed the expectations of analysts surveyed by Dow Jones Newswires, who forecast a gain of 0.8 percent.

And it also stood in contrast to a warning from S&P rating agency that Germany was at risk of losing its top AAA credit rating if EU leaders do not put a stop to the eurozone debt crisis.

S&P said that 15 of the 17 eurozone countries were at risk of a downgrade if an EU summit at the end of this week did not agree convincing action.

"German factory orders jumped by an extraordinary 5.2 percent in October, the highest increase since March 2010 and the fifth highest since 1990," said Christian Schulz from Berenberg Bank.

However, in a sign that the crisis might be having an impact on firms' order books in Germany, the ministry said that the gain was mainly driven from abroad, where orders rose by 8.3 percent on the month.

Domestic orders rose by a less impressive 1.4 percent.

Nevertheless, the ministry said: "After three declines in a row, industrial orders have made a good start to the final quarter of the year."

"The demand trend however remains subdued. Industrial production should therefore continue its currently settled development," the ministry said in a statement.

The poor figures from last month took their toll, however, on the less volatile two-monthly data, with orders in September and October down by 2.7 percent compared to July and August.

Despite the crisis seething around it, Germany's economy has remained broadly on track, although analysts warn it cannot remain immune to the turmoil forever.

Last week, unemployment in Germany fell to a 20-year low point and retail sales surprised to the upside, showing that consumers have not given up their optimism -- a trend also suggested by confidence surveys.

However, there have also been warning signs for Europe's biggest economy, not least from ratings agency Standard and Poor's who warned late Monday that Germany's coveted AAA credit rating was at risk.

A disappointing bond auction in Germany last month had also fuelled fears that the eurozone debt crisis was seeping from the edges of the bloc to the core.

Markets were concerned that if European powerhouse Germany was having difficulty selling its bonds, then there was little hope for the likes of Italy and Spain.

And while Germany appears to be holding its own, the broader eurozone is increasingly being battered by the crisis.

Eurozone growth rose by only a modest 0.2 percent in the third quarter, official EU data showed on Tuesday, as the financial and sovereign debt crisis continues to seep into the broader real economy.

Berenberg's Schulz said that while orders "may not be subsiding as rapidly as previously feared", they had still taken a dive compared to the first half of the year, with a likely knock-on effect on the German economy.

"The German economy may not be contracting in the fourth quarter just yet, but without a sustained change in direction, it still seems likely to do so this winter," he said.

"Such a change in direction is most likely to be achieved with an end to the European market confidence crisis. This week's EU summit and possible ECB action could be an important step on the way."

© 2011 AFP

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