German Factory Orders Surprise as More Workers Move Off Furlough

(Bloomberg) -- Germany progressed in its recovery from its record slump, with manufacturing orders rising much stronger than forecast in June and the number of workers on government support programs diminishing.

Having shrunk the most in at least half a century in the second quarter as a result of restrictions imposed to control the Covid-19 outbreak, Germany's economy is now showing signs of bouncing back more quickly than other euro-area countries.

Industrial orders increased 27.9%, climbing for a second month, data showed on Thursday. The catchup process was particularly pronounced for investment goods, and the Economy Ministry said demand is already at 90.7% of the level recorded at the end of last year.

Meanwhile, the Ifo Institute reported that the number of people working reduced hours under a program known as Kurzarbeit in German fell to 5.6 million last month, down from 7.3 million in May. The drop was especially strong in hospitality and retail, after restaurants and shops reopened.

The euro was trading near a two-year high after the data were published, and stood at $1.1842 at 10:37 a.m. in Frankfurt.

Germany's recovery so far has been primarily driven by domestic demand, with orders from abroad lagging behind. Given the country's export focus, that's raised questions about how sustainable the upturn will be.

European Central Bank Chief Economist Philip Lane has cautioned against excessive optimism about the euro area's rebound. A less-bad-than-expected drop in activity in the second quarter may mean a “less-steep step up” in the following three months, he said, adding that a renewed increase in coronavirus infections risks dampening consumer spending and business investment.

Germany's flagship car industry -- already struggling before the pandemic -- has been severely hit by the crisis. BMW AG recorded its first quarterly deficit since 2009, while Volkswagen AG lost 2.4 billion euros ($2.9 billion) and cut its dividend. Daimler AG argued it had weathered the worst but still needs to slash about 20,000 jobs.

Reports from IHS Markit this week also showed European companies made further cuts to their workforce last month.

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