German Factory Orders Growth Accelerates; Private Sector Expands For Second Month

(RTTNews) - Germany's factory orders growth accelerated in February driven by higher demand for motor vehicles and automobile engines and the overall private sector expanded for the second straight month in March reflecting the upturn in the service sector.

In a joint economic forecast, the leading think tanks said Germany's economic setback in the winter half of 2022/2023 is likely to have been milder than feared.

Factory orders grew 4.8 percent on a monthly basis, much faster than the 0.5 percent revised rise in January, Destatis reported Wednesday. The rate also exceeded economists' forecast of 0.3 percent.

Excluding large-scale orders, manufacturing orders posted an increase of 1.2 percent. Data showed that domestic orders increased 5.6 percent on month and foreign orders advanced 4.2 percent. Orders from the euro area surged 8.9 percent and that from the rest of the world rose only 1.4 percent.

Orders in the sector of manufacture of motor vehicles and motor vehicle engines grew 3.7 percent and demand in mechanical engineering moved up 2.8 percent.

While new orders in the capital goods sector climbed 7.3 percent, orders in the intermediate goods area rose only by 1.3 percent. New orders in the consumer goods sector moved up 1.9 percent.

Year-on-year, factory orders decreased 5.7 percent in February but slower than the sharp 12.0 percent fall see in January.

Real turnover in manufacturing grew 1.5 percent from the prior month, when it was down by revised 0.6 percent.

Although the increase in overall orders was due to the sharp rise in volatile orders, this at least shows stabilization in demand, Commerzbank Senior Economist Ralph Solveen said. However, this is unlikely to be the start of a longer-term economic revival.

In the coming months, there will be more evident impact of global rate hikes, which will also have a noticeable slowing effect on the German economy, the economist added.

Purchasing Managers' survey showed that the overall private sector expanded for the second month in a row in March. Germany's S&P/BME composite output index posted 52.6, in line with the flash estimate, and up from 50.7 in February.

The services PMI advanced to 53.7 from 50.9 in the previous month. The flash score was 53.9.

In services, the improvement in underlying demand fueled a pick-up in job creation. Both input cost and output charge inflation slowed in March.

"However, it remains to be seen if March's solid performance is enough to prevent the economy from entering a technical recession - as defined as back-to-back quarterly contractions in GDP - given the carry over effects from the downturn in activity seen late last year," S&P Global Market Intelligence Economic Associate Director Phil Smith said.

In the monthly report released in March, Bundesbank said the German economy is likely to fall in the first quarter but the decline will be slower than the 0.4 percent fall in the final quarter of 2022.

The joint economic forecast, conducted by several economic research institutes twice a year, said the supply-side disruptions weighing on the German economy have eased.

The largest euro area economy is forecast to grow 0.3 percent this year, which was revised up from the previous estimate of 0.4 percent contraction. However, for 2024, growth outlook was revised down to 1.5 percent from 1.9 percent.

"A noticeable decline in consumer price inflation will be some time coming, as the demand pull is likely to continue for the time being," the report said. Inflation is forecast to fall slightly to 6.0 percent this year. The rate is not expected to fall noticeably until next year.