Germany Factory Orders Jump As Economy Shakes Off Recession

(Bloomberg) -- German factory orders rebounded in May, a sign the manufacturing slump may be easing as Europe's biggest economy shakes off a recession.

Demand increased 6.4% from April, much more than the 1% gain economists had predicted in a Bloomberg survey, with increases seen both domestically and abroad. Overall orders are still down 4.3% from a year earlier. 

The biggest increases were seen at manufacturers of vehicles of all sorts. Orders in a category called “other transport equipment” — which includes everything from ships to military materiel — jumped by 137%. 

The report is rare evidence of good news for industry at a time when German business is showing consistent signs of struggling after dragging the economy into a second quarter of negative output earlier this year. 

Carmakers' expectations are at their worst since the 2008 financial crisis, according to a survey published on Wednesday, while a report earlier this week showed machinery companies aren't seeing any sign of improvement in business prospects. A purchasing managers' index earlier this week pointed to intensifying deterioration in Germany's manufacturing sector. 

“The industrial downturn is still being offset by solid demand in the services sector,” Joerg Zeuner, chief economist of Union Investment in Frankfurt, said in a report. “Even if the situation in manufacturing gives little cause for celebration, the German economy is currently more likely to stagnate than shrink.”

Factory orders have been suffering from poor demand in China, the world's second-biggest economy, which is itself losing momentum after months of contraction in manufacturing there.

Among German companies suffering from a worsened outlook, chemical company Lanxess AG last month cited weak demand from industrial customers.   

Things aren't likely to get better for the country's manufacturing businesses any time soon, with tighter monetary policy likely to weigh on economic growth. Meanwhile the sinking water level of the Rhine River is raising concerns about a supply crunch.

While Germany is the motor of Europe's economy, there's a mixed picture elsewhere across the region's industrial landscape. A purchasing managers' index in Italy this week suggested manufacturing had its worst month since the height of pandemic lockdowns in early 2020. 

By contrast, data on Wednesday showed factory output in France surged in May to the highest level in three years. Spanish production also increased. 

German industrial data due to be released on Friday might point to ongoing weakness. Output probably stalled in May, according to economists' estimates that suggest it still remains lower than in the first quarter.

--With assistance from Alexander Weber.

(Updates with economist comment in sixth paragraph)

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