German factory orders increase for first time in 5 months
Recent business confidence indicators suggest a good start to the final 3 months of the year
[BERLIN] German factory orders rose for the first time in five months, supporting hopes for a turnaround in Europe’s largest economy after two years of contraction.
Demand increased by 1.1 per cent in September, led by automotive and electrical equipment manufacturers, the statistics office said in a statement on Wednesday (Nov 5).
That is just above the 0.9 per cent median estimate in a Bloomberg survey. In August, orders fell by a revised 0.4 per cent.
The economic ministry cautioned in a statement that the gain was also due to a reversal from August, when higher domestic demand was outweighed by foreign weakness.
“A clear trend is therefore not yet discernible,” the ministry said.
“The development of the order situation remains fragile in light of ongoing geopolitical uncertainties, and most recently, concerns about the supply of key intermediate products.”
Germany’s economy, which shrank in 2023 and 2024, stagnated in the third quarter – narrowly avoiding a recession. But recent business confidence indicators suggest a good start to the final three months of the year.
The country is particularly vulnerable to the higher US tariffs, and is suffering from structural problems like red tape and a lack of skilled workers.
At the same time, massive public infrastructure and defence spending, plus the recent interest rate cuts by the European Central Bank (ECB), should support activity in the coming years.
Chancellor Friedrich Merz’s ruling coalition expects expansion of 1.3 per cent and 1.4 per cent in 2026 and 2027, respectively, after a marginal increase of 0.2 per cent this year.
The latest forecasts by the International Monetary Fund are a bit less rosy, in that it anticipates that output will be only 0.9 per cent higher in 2026.
“Next year, we will see the economy pick up, and in 2027, we will probably see even more growth,” Bundesbank president Joachim Nagel said at an event on Tuesday (Nov 4) in Berlin. “If companies show some initiative, this delicate little plant could blossom into something more.”
Despite that optimism, the central bank and the nation’s leading research institutes recently warned that the government must implement more fundamental reforms to boost competitiveness and lift long-term growth prospects.
At the same time, the French industry also showed signs of improvement in September, with output growing by 0.8 per cent on the month, fuelled by a strong rebound in the transport materials sector.
The increase – the first since June – was well ahead of the 0.1 per cent expected by economists in a Bloomberg survey.
France’s economy is so far weathering a volatile political situation, as a fragile minority government strains to stay in power and adopt a budget.
Despite heightened uncertainty about large tax increases that may hit firms in January, business investment helped drive an acceleration in growth in the third quarter. BLOOMBERG
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