German factory orders rose the most in two and a half years in December amid a surge in investment-goods demand, suggesting that the strong run of Europe’s largest economy at the end of the year is set to continue.
Orders, adjusted for seasonal swings and inflation, gained 5.2% from November, when they fell a revised 3.6%, data from the Economy Ministry in Berlin showed on February 6. That’s the highest since July 2014. The typically volatile reading compares with a median estimate for a 0.7% increase in a Bloomberg survey. Orders were up 8.1% from a year earlier.
Economic expansion accelerated in the final quarter of 2016, and a jump in orders in the three months bodes well for manufacturing at the start of this year. Companies from Siemens AG, Europe’s largest engineering company, to Airbus Group SE, which assembles most of its single-aisle planes in Hamburg, won contracts in December.
While the Bundesbank predicts job creation should continue as confidence improves, growing uncertainty in the region and beyond risks hurting Germany’s export-focused manufacturing sector. At the same time, accelerating inflation threatens to slash consumers’ purchasing power.
“All recent data point to a very strong start for 2017 in Germany and in the euro area after a very good fourth quarter,” said Julian Trahorsch, an economist at Landesbank Baden-Wuerttemberg in Stuttgart. While he estimates the economy expanded 0.6 percentage point in the three months through December, Trahorsch said he’s not “overly optimistic for 2017 because there are several major headwinds for the economy.”
Germany will report gross-domestic-product data on Feb. 14, after the statistics office said at the start of the year that growth accelerated to around half a percentage point from 0.2% in the third quarter. The economy grew 1.9% in 2016, the most in five years.
The Economy Ministry said bulk orders were significantly above average. Demand for investment goods from the euro area surged 19.5% in December, pushing export orders up 10% from November. Domestic orders rose 6.7% on the month.
Orders increased 4.3% in the fourth quarter from the previous three months. “This signals a further revival of momentum in manufacturing in the winter half,” the ministry said. It will publish industrial-production data for December on February 7.
Data on February 6 also showed construction activity slowed in January, with a Purchasing Managers’ Index for the sector falling to 52 from 54.9 in December. A reading above 50 indicates expansion.
By Alessandro Speciale