German Factory Orders Rise as Pandemic Holds Grip on Economy

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German factory orders increased more than anticipated in December, a bright spot for Europe's largest economy as the pandemic threatens to tip it into another recession. 

Demand increased 2.8% after rising a revised 3.6% in the previous month, a stronger reading than even the highest estimate in a Bloomberg survey of 27 economists. Domestic demand was a key driver of the development.

German output shrank 0.7% in the final three months of last year as consumers were spooked by another wave of Covid-19 infections and factories continued to reel from supply-chain problems. Coronavirus cases continue to reach record levels as the omicron variant sweeps through the region. 

Business surveys have recently pointed to an easing of the bottlenecks that have curtailed factory output and driven up costs for producers. If confirmed, an improved supply situation could help fuel a strong rebound expected to take hold later in the year. 

Inflation, which didn't slow as much as predicted in January amid surging energy prices, remains another challenge. Manufacturing firms are increasingly passing on higher costs to their customers, threatening to keep inflation elevated for longer. 

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