Light at end of tunnel for German economy

5th December 2014, Comments 0 comments

An unexpectedly strong rise in factory orders added to the signs that the German economy, Europe's biggest, may be putting its recent phase of weakness behind it, analysts said Friday.

According to regular data compiled by the economy ministry, German industrial orders rose by 2.5 percent in October compared with the previous month, after already rising by 1.1 percent in September.

"This was a good start to the fourth quarter. Alongside a brightening of sentiment indicators, the signals are looking increasingly positive," the ministry said in a statement.

"Even if the economic risks continue to exist, this suggests that the German economy could be gradually beginning to recover from its period of weakness."

Other recent German data, including key sentiment indicators such as the Ifo business climate index, have also surprised to the upside.

And while the German central bank or Bundesbank slashed its growth forecasts for 2014, 2015 and 2016 on Friday, it too said the economy remains in "remarkably good shape."

"Whether the German economy can grow more dynamically over the course of 2015 primarily depends on the international setting," the Bundesbank said in its half-yearly projections.

"If the economic recovery in the euro area picks up as expected and world trade gains renewed momentum, additional expansion will be possible."

German enterprises were predominantly well positioned, with low debt and balanced price-cost ratios, and "should be able to take advantage of the opportunities that may arise," the central bank wrote.

- 'In good shape' -

"Given the extremely favourable funding conditions, this is likely to extend to investment as well. The domestic economy, too, is in good shape."

Analysts also took heart from the apparent turnaround in factory orders and other data.

"Overall, it suggests that the German economy has stabilised following the weakness seen in the summer," said BayernLB economist Stefan Kipar.

"The signs are favourable that negative growth GDP rates will be successfully avoided in the winter. The lower euro will provide support," Kipar said.

German gross domestic product (GDP) contracted by 0.1 percent in the second quarter, but returned to growth again in the third quarter, meaning Europe's biggest economy escaped a new recession.

Commerzbank economist Marco Wagner said the latest factory orders data "suggest that the manufacturing sector has turned around and that production will tend to rise again in the coming months.

"For this reason it is likely that the overall economy will also expand somewhat more rapidly than in third quarter," he said.

UniCredit economist Andreas Rees was more cautious.

"It is too early to push the all-clear button for take-off in the industrial sector. However, looking at the details of today's data signals a promising start into the fourth quarter," he said.

Bundesbank president Weidmann said falling oil prices should help the economy overall by providing relief to households and companies.

"If the low crude oil prices were to endure, projected inflation for 2015 would need to be lowered by 0.4 percentage point. The repercussions for the real economy are more difficult to quantify. However, economic growth could consequently be 0.1 to 0.2 percentage point higher in the two coming years," Weidmann said.

© 2014 AFP

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