February 6, 2018 / 11:02 AM / 7 months ago

German industry orders shoot up despite stronger euro

BERLIN (Reuters) - German industrial orders rose more than expected in December, data showed on Tuesday, supporting expectations that Europe’s largest economy is on track for another year of growth after expanding by 2.2 percent in 2017.

File Photo: A worker controls the cast at a blast furnace in Salzgitter March 24, 2010. REUTERS/Christian Charisius

Factories registered a 3.8 percent increase in orders, data from the Federal Statistics Office showed, far exceeding expectations in a Reuters poll for a 0.7 percent rise.

A breakdown of the data showed most of the demand for German goods came from abroad. The rest of the euro zone, which is seeing its broadest recovery in 10 years, made the largest contribution with an 11.2 percent rise in contracts.

In another positive sign, German engineering orders rose by 7 percent in December in real terms from the previous year, propelled by strong domestic demand, the VDMA industry association said on Tuesday.

The double-digit surge in domestic bookings is “especially pleasing”, VDMA chief economist Ralph Wiechers said. He noted that over the full-year period, foreign demand had been stronger.

Domestic consumption should gain after industrial workers and employers reached a wage agreement on Tuesday that will give the employees a 4.3 percent pay rise in April and other payments spread over the next 27 months.

“Workers will have more money in their pockets in real terms; they will get a fair share of company profits; and that will boost consumption,” IG Metall negotiator Roman Zitzelsberger told reporters.

The industrial-orders data supports evidence that the European Central Bank’s easy money policy is stimulating consumption and increasing demand for German goods and services in a growing euro zone.

The December reading was the highest since August and capped a solid fourth quarter in which orders grew by 4.2 percent, mainly helped by robust demand for capital goods.

“It is surprising how many orders are coming from abroad,” said Christiane von Berg of BayernLB. “This shows that not even the strong euro can slow down the economy.”

EVEN HIGHER

Orders fell by 0.1 percent in November, an upward revision from a fall of 0.4 percent previously reported.

The economy has been humming along despite Chancellor Angela Merkel’s struggle to form a government after an inconclusive election in September. Her conservatives and the centre-left Social Democrats (SPD) were 95 percent of the way to a deal, an SPD negotiator said on Tuesday, which should bolster the economy.

The government has revised up its growth forecast for this year to 2.4 percent.

The 19-country euro zone grew by 2.5 percent in 2017, the highest rate in a decade, helped by the ECB’s low interest rates and its infusions of cash into the region’s economy.

“The growth momentum (of the fourth quarter) will carry through into the current quarter,” said Alexander Krueger of Bankhaus Lampe. “It looks as if industrial orders will rise even above the currently high level of demand.”

Additional reporting by Michael Nienaber, Reinhard Becker, Ilona Wissenbach and Paul Carrel, editing by Madeline Chambers and Larry King

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