Germany Factory Orders Unexpectedly Jump Most in Three Years

German factory orders unexpectedly jumped the most in three years in June, a sign that Europe’s largest economy is stabilizing.

(Bloomberg) — German factory orders unexpectedly jumped the most in three years in June, a sign that Europe’s largest economy is stabilizing.

Demand rose by 7% from May, defying all economist projections for a drop. The surprise increase was down to major orders, without which the data would have shown a 2.6% decline.

While the report signals improvement, the gain also reflects a rebound after a 10.9% drop in March, which has now been “compensated for,” according to statistics officials. 

On a three-month basis, orders were up only 0.2%, an outcome that chimes with the economy’s overall performance in the second quarter, when it stagnated after a winter recession. 

The statistics office’s statement highlighted a major order in the aerospace industry. That coincides with a spike in demand at Airbus SE, which received 902 aircraft orders in June. The world’s biggest planemaker has a major plant in Hamburg, with smaller units spread across the rest of Germany.

The outlook is less promising, with manufacturing PMIs for July painting a dire picture. The industry has been suffering from poor demand in China, the world’s No. 2 economy, which is itself losing momentum.

What Bloomberg Economics Says…

“Contraction in Italy and stagnation in Germany are signs that the economy of the monetary union remains weak. Add that to lower PMI readings and rapidly tightening credit conditions and policymakers have plenty of reasons to worry.”

—David Powell, senior euro-area economist. For full Insight, click here

German manufacturing data due for release on Monday may still show ongoing weakness. Output probably fell in June, according to analyst estimates that suggest it remains lower than in the first quarter.

French industrial production numbers published Friday already point in the same direction. They fell 0.9% in June, more than the 0.3% drop predicted by economists. 

Declines were particularly sharp in electric equipment and car production, statistics agency Insee said. Output from energy intensive sectors such as chemical, steel and paper has suffered in recent months as factories struggled with a jump in costs of electricity and natural gas contracts.

Industrial production in Spain also fell more than expected in June, dropping by 1%. By contract, Italy saw an unexpected increase of 0.5%, though that was almost entirely caused by transport vehicles.

–With assistance from Joel Rinneby, Mark Evans, William Horobin, Barbara Sladkowska, Boris Groendahl, Sid Verma, Joshua Robinson and Giovanni Salzano.

(Updates with Italian data in final paragraph)

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