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German factory orders decline in August against forecasts

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German factory orders decline in August against forecasts

German factory orders unexpectedly fell 0.3 percent in August, as signs of a slower recovery emerged for the euro area’s largest economy.

The monthly report, which is released by the Deutsche Bundesbank, is a key measure of growth in the German economy. Factory orders measure shipments, inventories and new/unfilled orders in the manufacturing sectors.

Economists forecasted orders to have risen more than 1 percent in August, after a 1.9 percent decline the previous month. Orders climbed 3.1 percent on an annualized basis. Europe’s largest economy has been supported by an improving consumer climate, but strong headwinds have led to slower growth in the third quarter, according to the Bundesbank. Germany has been affected by near-record unemployment in the euro area, its largest trade partner. Across the Atlantic, an ongoing political impasse has also weighed heavily on US-bound exports.

While recovery is going to be slow for Germany, market participants shouldn’t expect any major derailments, not unless the United States defaults on its debt. The US government has entered its second consecutive week of a partial shutdown, as it inches ever-closer to October 17, when the government will have exhausted its borrowing authority. The United States risks a catastrophic default should lawmakers fail to increase the debt limit.

The Bundesbank’s monthly report showed gradual improvement in Germany’s domestic factory orders, which rose 2.2 percent in August on the heels of improving domestic demand. However, foreign demand fell 2.1 percent, and investment-goods orders decreased 0.7 percent. Rising domestic demand signals a revival in economic activity, especially investment activity. The volume of investment orders continues to be above average.

Germany’s gradual improvement confirms a statement made last week by European Central Bank President Mario Draghi, who cautioned market participants the euro area will improve gradually from its lows.

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