Steep Drop in German Factory Orders Surprises Analysts

Fears that German industry is facing a difficult year-end and even a possible recession in some key sectors were fuelled on Tuesday by data showing a bigger-than-expected slump in factory orders.

Fears that German industry is facing a difficult year-end and even a possible recession in some key sectors were fuelled on Tuesday by data showing a bigger-than-expected slump in factory orders.

The German Economy Ministry said industrial orders declined by 3.3% in September from August after already falling by 0.8% the previous month.

That is much steeper than expected. Analysts polled by Dow Jones had been penciling in a much more modest decrease of 0.5%.

The decline was largely due to falling export orders, particularly from the eurozone, where they plummeted 9.6%, the ministry explained.

But domestic orders were also weak, contracting by 1.8%.

The slump in demand was seen across all sectors, with orders for semi-finished goods down 5%, orders for consumer goods down 1.7% and capital-goods orders declining by 2.4%, the data showed.

Taking the third quarter as a whole, industrial orders fell by 2.3%, the ministry calculated.

Newedge Strategy analyst Annalisa Piazza said the data paints a "dire picture for the German factory sector which -- in the second half of the year -- is unlikely to be spared from a technical recession."

Likewise, UniCredit economist Andreas Rees believes the numbers "herald a weak year-end for German companies. Both foreign and domestic demand shifted into reverse gear."

But he insisted that "despite all the [likely] disappointments in September, the overall German economy did surprisingly well" in the third quarter.

Nevertheless, a better-than-expected third quarter "will be followed by a setback at year-end," and so Rees was sticking to his forecast for the economy to stagnate in the second half of this year before picking up some momentum in 2013.

Markit economist Chris Williamson said that "while official data may point to only a mild downturn for Germany and the euro area as a whole in the third quarter, prospects for the fourth quarter are looking much bleaker."

Natixis economist Christian Ott said the German economy has been able to resist the downward trend in global demand so far.

"In our view, however, the resilience has come to an end and we will see the effects in a weak fourth quarter," he said.

Copyright Agence France-Presse, 2012

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