International Finance
Economy

German factories on a roll in April, see orders recover

Markit data however paints more subdued picture for May despite robust beginning to second quarter, reports Team IFM Wiesbaden, June 12: Orders at German factories posted a remarkable recovery in April after taking the sharpest nosedive in a year the month before, official data released here on Thursday said, while an independent survey showed order intakes in May to continue on its northbound arc but...

Markit data however paints more subdued picture for May despite robust beginning to second quarter, reports Team IFM

Wiesbaden, June 12: Orders at German factories posted a remarkable recovery in April after taking the sharpest nosedive in a year the month before, official data released here on Thursday said, while an independent survey showed order intakes in May to continue on its northbound arc but at the slowest pace since last October.

In a sprightly beginning to the second quarter, factory orders rose more-than-expected in April to post a 3.1 percent upswing, latest data from the federal statistics agency Destasis showed. German manufacturers had seen orders plummet 2.8 percent in March.

A panel of 34 analysts polled by Bloomberg News had expected German factory orders to rise 1.4 percent in the month under review, and the pace of actual growth seems to confirm the assertion by Destasis last month that “the German economy is gaining momentum”.

“We see fairly balanced, robust growth in Germany at the moment,” Bloomberg quoted Alexander Koch, an economist at Raiffeisen Schweiz in Zurich, as saying. “There is volatility in the monthly data but everything points toward ongoing expansion this year.”

According to Destasis data, the GDP nosed up 0.8 percent upon seasonal adjustments in the first quarter, compared with the October-December period of 2013. “The last time GDP grew more in a quarter-on-quarter comparison was three years ago,” the statistical office said.

The statistics office also said that in a quarter-on-quarter comparison – adjusted for price, seasonal and calendar variations – domestic demand made “positive contributions” to growth in the January-March period.

In a pointer to the overall robustness, household final consumption expenditure increased 0.7 percent in the first quarter this year over the fourth quarter of 2013, while that of the government by 0.4 percent.

Alongside, a survey by independent economy tracker Markit said while factory output was on an upswing in May for the 11th consecutive month, the manufacturing PMI dropped to a seven-month low with both production and new orders rising at weaker rates.

“The latest survey results are a reminder that sustainable strong manufacturing growth cannot be taken for granted and that there may still be some more obstacles on the path to recovery,” said Oliver Kolodseike, economist at Markit and author of the survey report, in a statement.

ORDERS RISE

Meanwhile, the Destasis data showed the recovery in German factory orders in April – notched at a faster than expected pace and beating economists’ prediction – was in part due to a sharp increase in foreign orders, which went by 5.5 percent.

Orders from the euro area advanced 9.9 percent over that of the previous month, while at the same time orders from other countries were up 3.1 percent. Domestic orders had no effect, remaining as it did at the level of the preceding month.

According to the statistical office, “the proportion of major contracts was above average for April”, without which it said the order intake would have increased at a more modest 1.5 percent.

Destasis said orders for consumer goods and capital goods, plus those from overseas, spiked the April numbers. “The order volume in the industry was thus more than the average level of the first quarter (up 1.5 percent)”, it said.

Also, in terms of a three-month comparison, the trend in new orders in January-March this year was slightly more “upward directed” than the October-December 2013 period, it said.

The demand from the domestic market continued to increase in the first quarter, the data office said. In contrast, the orders from abroad in the three-month comparison declined. “Here, the strong monthly fluctuations of large orders played a role,” Destasis said.

New orders for major industrial contracts increased 0.8 percent quarter-on-quarter, it added, and described the trend as “a good start to the second quarter”.

MODEST MAY

Meanwhile, the Markit survey for May said output growth eased sharply during the month though remaining above series average, while order intakes increased at the slowest pace since October last year. Employment growth was sustained, but the rate of job creation was only marginal.

Overall, it said, the May data pointed to the 11th consecutive monthly improvement in manufacturing conditions with the PMI – the gauge for manufacturing activity – dipping to 52.3 from 54.1 in April.

“The latest reading was the weakest since October last year, signalling slower growth in the sector,” Markit said.

The weaker headline PMI reading in May largely reflected slower growth rates of output and new orders. Production growth eased markedly since April to a seven-month low, but was solid overall and remained above the long-run series average.

Meanwhile, the growth rate of new work also fell to the weakest since last October. Markit said some companies talked of new order growth slowing after mild weather had boosted demand at the beginning of the year, while a general positive economic environment was mentioned as a reason for the overall increase in new business.

New export orders also increased at a weaker rate in May, Markit said, adding: “Nevertheless, new export business has now risen for 10 months in succession, the longest continuous spell of growth since mid-2011.”

In line with weaker trends for output and new orders, the rate of job creation was also the slowest in the current six-month period of employment growth, as companies had to reduce workforce in response to slower new business growth.

Backlogs of work fell for the first time in eight months, signalling some spare capacity in Germany’s manufacturing sector. Purchasing activity also rose for the 11th month running during May, but the pace of expansion eased to the slowest since October last year.

The sudden rise in new orders upset suppliers’ delivery times, which deteriorated at the fastest pace since January. According to anecdotal evidence, vendors continued to struggle with larger inflows of new work, resulting in slower delivery times.

“The combination of weaker trends for output and new orders plus falling backlogs of work fed through to the jobs market,” said Markit economist Kolodseike. “Employment growth edged closer to stagnation in May, with some companies shedding staff in response to lower production requirements.”

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