Friday, July 04, 2008

Falling German Factory Orders Offer More Evidence of Slowdown

German manufacturing orders declined again in May, making the sixth straight month that orders have been down and adding to signs that Europe's largest economy is now slowing significantly. Orders, adjusted for seasonal changes and inflation, fell 0.9 percent from April, according to data from the Economy Ministry this morning. Orders were down 2% from April 2007.

Domestic orders dropped 2.7 percent in May while foreign sales gained 0.8 percent. Orders from other euro-area countries increased 3.4 percent and demand from the rest of the world fell 1.2 percent in the month. Order growth over the past six months has ``cooled significantly,'' the ministry said in the statement. ``Overall it points to weaker developments in industrial production.''

German manufacturing growth is evidently weakening as near-record oil prices push up inflation and damp the spending power of companies and households just as a strong euro weighs on exports. The European Central Bank raised interest rates yesterday to a seven-year high to combat the threat of an inflation spiral.

Flash estimates for the German PMI at the end of June suggested that German manufacturing weakened in June, although the index reading - which fell to 52.3 in June from 53,6 in May - still indicated expansion.

The German services PMI also saw a decline, falling to 53.3 from May's 53.8 level.

Eurozone inflation accelerated to a 16-year high of 4 percent in June. In Germany, which accounts for about a third of the region's economy, annual price gains reached 3.4 percent, the fastest since records began.

Today's report is the latest to signal that Germany's economy, which so far has coped, is losing its momentum. German consumer, business and investor confidence fell last month. Plant and machinery orders dropped the most in three years in May, the VDMA machine makers association said earlier this week.
German business confidence fell to the lowest in more than two years in June, according to the reading on the Munich-based Ifo institute business climate index, based on a survey of 7,000 executives, which declined to 101.3 from 103.5 in May. That's the lowest since January 2006.

Consumer confidence is also falling GfK's index forward looking index for July 2008, which is based on a survey of about 2,000 people, declined to 3.9 from a revised 4.7 in June.

Also the German economy may well have contracted in the second quarter of 2008 after having expanded at the fastest pace in 12 years in the first three months of the year, according to Germany's Deputy Economy Minister Walther Otremba.

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