German factory orders rebound in sign of returning growth

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German factory orders surged the most in more than one year in July after weak demand in the second quarter contributed to an economic contraction.

Orders, adjusted for seasonal swings and inflation, rose 4.6 per cent from June, when they slid a revised 2.7 per cent, the Economy Ministry in Berlin said on Thursday. That's the biggest increase since June 2013 and exceeds the 1.5 per cent median of 33 estimate in a Bloomberg News survey.

German business confidence has waned as sanctions against Russia, the country's retaliations and tensions in West Asia begin to affect the economy, which contracted 0.2 per cent in April-June period. At the same time, unemployment at a record low is bolstering consumption as the European Central Bank implements historic stimulus measures to rekindle growth.

"Ahead of today's ECB meeting, German new order data should give some relief that not everything is gloom and down," said Carsten Brzeski, chief economist at ING-DiBa AG in Frankfurt. Data are "providing evidence that the euro zone's largest economy should return to growth in the third quarter."

The euro was little changed after the report and traded at $1.3141 at 8:34 am Frankfurt time.

Bulk orders
Domestic manufacturing orders rose 1.7 per cent in July from the previous month while export orders surged 6.9 per cent, driven by a 14.6 per cent increase in investment-goods demand from outside the euro region, the ministry said. Basic goods orders were up 0.3 per cent and consumer goods demand dropped 2.9 per cent in July.

"After economic uncertainty due to geopolitical developments and cyclical weakening in the second quarter, the strong order increase provides an encouraging signal for the industry," the ministry said in an e-mailed statement. While bulk orders "played a role," overall order activity "has been pleasingly positive in the past two months," it said.

ThyssenKrupp AG tripled earnings in the second quarter and is expanding its elevator, industrial and components units amid weak steel prices. At the same time, Germany's VCI chemical trade group cut its 2014 sales and production forecasts citing geopolitical tensions.

The Bundesbank has acknowledged the risk and cast doubt on its prediction for an economic rebound in the second half of the year. In June, it forecast German growth of 1.9 per cent this year and 2 per cent in 2015, which compares to ECB projections for expansions of 1 percent and 1.7 per cent, respectively, in the euro area.

Policy makers are gathering in Frankfurt today to discuss whether more stimulus is needed. The majority of economists in a Bloomberg News survey predicts they will keep interest rates at record lows after Mario Draghi raised the prospect of large-scale asset purchases last month.