Wednesday 22 October 2014

German factory orders weather Ukraine crisis despite sanctions

Madeline Chambers

Published 05/09/2014 | 02:30

A soldier of Ukrainian self-defence battalion "Azov" stands guard at their base in the southern coastal town of Mariupol

German industrial orders rose at their strongest rate in more than a year in July, raising hopes that Europe's biggest economy may yet weather the crisis in Ukraine and bounce back after a tricky second quarter.

Data released yesterday showed a 4.6pc month-on-month increase in orders, rising more than three times faster than the Reuters consensus forecast for a 1.5pc increase as demand from outside the Eurozone surged.

"After the uncertainty caused by geopolitical developments and a weaker economy in the second quarter, the strong rise in orders is an encouraging signal for the industrial economy," said the country's economic ministry in a statement.

Germany's gross domestic product surprisingly contracted in the three months to June, falling 0.2pc quarter on quarter to raise doubts about whether it could prop up growth across the continent as western sanctions against Russia over Ukraine began to fuel anxiety within the business community.

Yesterday's jump in orders was driven by robust demand, especially from countries outside the Eurozone, for capital goods.

The ministry said big-ticket items had played a role in the increase but underlying activity was also positive.

With weak investment and slow trade having driven the second quarter GDP contraction, some economists expressed fears when that data came out last month that Europe's economic engine could slip into recession in the third quarter.

But others said the data showed that the conflict in eastern Ukraine, while weighing on sentiment surveys, had not had any significant impact on hard data. "All the talk about geopolitical tensions and their swift impact on German hard data was wrong and largely exaggerated," said Andreas Rees, economist at UniCredit.

"The Russian-Ukrainian crisis does not resemble the Lehman shock with its swift and brutal impact we had gone through six years ago."

Markit's composite Purchasing Managers' Index (PMI) showed on Wednesday that Germany's private sector expanded at its slowest pace in 10 months in August as manufacturing grew at a weaker rate.

Some economists said they expected surveys such as the Ifo business climate index and ZEW analyst and investor index, to improve soon.

"The business surveys have yet to stabilise, after they fell a bit further in August. Our expectation is that this will begin to materialise from September," said Greg Fuzesi at JP Morgan.

Orders for capital goods rose 8.5pc, driven by a 14.6pc increase in demand from countries outside the Eurozone, while contracts from members of the single currency rose just 2.9pc.

"On a more negative note, however, the only marginal improvement of new orders from other Eurozone countries shows downside risks for the German economy currently do not mainly come from geo- political tensions but rather from longer-than-expected weak demand from Eurozone peers," said ING economist Carsten Brzeski.

The July increase was the strongest since June last year.

Irish Independent

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