German industrial orders fall sharply

German Chancellor Angela Merkel and Economy Minister Philipp Roesler on September 29, 2011 in Berlin, Germany.

Story highlights

  • A 2.7 per cent drop in orders compared with December highlighted the vulnerability of Europe's largest economy to global growth prospects.
  • January's drop in industrial orders included an 8.6 per cent fall in demand from non-eurozone countries.
  • Economists said Germany could still escape a technical recession and remained poised for activity to speed up again after a weak end to 2011.

Germany's economic rebound, which has helped counter gloom created by Europe's debt crisis, was set back in January by an unexpectedly sharp fall in industrial orders, especially from beyond the eurozone.

A 2.7 per cent drop in orders compared with December, reported on Wednesday by the Berlin economics ministry, highlighted the vulnerability of Europe's largest economy to global growth prospects and a possible significant slowdown in countries such as China. December had seen a 1.6 per cent rise.

Economists said Germany could still escape a technical recession, defined as two quarters of economic contraction, and remained poised for activity to speed up again after a weak end to 2011, with domestic demand becoming a more important driver of growth. Soaring oil prices could yet pose a threat, however.

"We still think that the German economy is back on an expansionary path. The global cycle is still all right, financing conditions in Germany are pretty good," said Dirk Schumacher, economist at Goldman Sachs in Frankfurt. "What worries me are oil prices, because they have the potential to stop growth but that hasn't happened yet."

January's drop in industrial orders included an 8.6 per cent fall in demand from non-eurozone countries. German orders, in contrast, rose 0.9 per cent compared with December.

The orders data are often volatile and in December orders from outside the eurozone rose 12.1 per cent month-on-month. The economics ministry added that the latest figures had been distorted by a below-average volume of large orders but admitted that "incoming orders had started weakly overall in the new year".

The data struck a cautious note before Thursday's European Central Bank interest rate setting meeting. Since the start of the year, Mario Draghi, ECB president, has spotted "tentative signs of a stabilisation in economic activity at a low level" across the eurozone but warned about high levels of uncertainty. The ECB is waiting to see the impact on the real economy of its injections more than €1tn in three-year loans into the eurozone banking system. The central bank is expected to leave its main interest rate unchanged on Thursday at a record low of 1 per cent.

German gross domestic product fell 0.2 per cent in the final three months of 2011 compared with the previous quarter. But hopes of a quick rebound have been boosted by a strong rise in economic optimism shown by the Ifo business climate index -- which rose in February for a fourth consecutive month -- to its highest level since July.

Steady falls in German unemployment have also helped support domestic demand, while low ECB interest rates and its generous provision of liquidity mean that German companies and households have had scant problem in obtaining liquidity.

Alexander Koch, economist at UniCredit in Munich, still expected demand from emerging market economies for German goods and services to to compensate for weakness in the eurozone and expected the orders data to see a "gradual recovery" in dynamism.

      Markets in crisis

    • German Chancellor Angela Merkel talks with Finance Minister Wolfgang Schaeuble during a session at the Bundestag (lower house of parliament) on June 25, 2013 in Berlin.

      Schaeuble: 'Don't see' bailouts

      German Finance Minister Wolfgang Schaeuble says the eurozone's problems are not solved, but "we are in a much better shape than we used to be some years ago."
    • IBIZA, SPAIN - AUGUST 21:  A man dives into the sea in Cala Salada beach on August 21, 2013 in Ibiza, Spain. The small island of Ibiza lies within the Balearics islands, off the coast of Spain. For many years Ibiza has had a reputation as a party destination. Each year thousands of young people gather to enjoy not only the hot weather and the beaches but also the array of clubs with international DJ's playing to vast audiences. Ibiza has also gained a reputation for drugs and concerns are now growing that the taking and trafficking of drugs is spiralling out of control.  (Photo by David Ramos/Getty Images)

      Spain keeps partying

      Summer could not have come soon enough for Lloret de Mar, a tourist resort north of Barcelona. Despite the country's troubles, it's partying.
    • The Euro logo is seen in front of the European Central bank ECB prior to the press conference following the meeting of the Governing Council in Frankfurt/Main, Germany, on April 4, 2013.

      OECD: Slow recovery for Europe

      The global recovery has two speeds: That of the stimulus-fed U.S. and that of the austerity-starved eurozone, according to a new report.
    • The flags of the countries which make up the European Union, outside the European Parliament in Strasbourg, France.

      Europe's new threat: Slow decay

      The "rich man's club" of Europe faces economic decay as it struggles to absorb Europe's "poor people", according to economic experts.
    • Packed beaches and Brit pubs? Not necessarily. Here's what drew travelers to one of Spain's most beautiful regions in the first place

      Spain aims for big tourist summer

      Spain's economic crisis is in its sixth straight year yet tourism, worth 11% of GDP, is holding its own, one of the few bright spots on a bleak horizon.
    • Photographer TTeixeira captured these images from a May Day protest in Porto, Portugal, Wednesday by demonstrators angered by economic austerity measures. "People protested with great order, but showed discontent against the government who they blame for this economic crisis," she said. "They want the government to resign and the Troika [European Commission, International Monetary Fund and European Central Bank] out of this country."

      May Day protesters flood Europe

      As European financial markets close for the spring celebration of May Day, protesters across Europe and beyond have taken to the streets to demonstrate.
    • Croatian Prime Minister Zoran Milanovic delivers a speech in Mostar, on April 9, 2013. Prime Ministers from Bosnia's neighboring countries arrived in Bosnia with their delegations to attend the opening ceremony of "Mostar 2013 Trade Fair".

      Croatia PM: We need Italy to recover

      As Croatia prepares to enter the 27-nation European Union, the country's Prime Minister says Italy must return to being the "powerhouse of Europe."
    • Anti-eviction activists and members of the Platform for Mortgage Victims (PAH) take part in a protest against the government's eviction laws in front of the Popular Party (PP) headquarters in Mallorca on April 23, 2013.

      Spain's unemployment hits record

      Spain's unemployment rate rose to a record high of 27.2% in the first quarter of 2013, the Spanish National Institute of Statistics said Thursday.
    • People protest against the Spanish laws on house evictions outside the Spanish parliament on February 12, 2013 in Madrid, Spain.

      Welcome to Madrid: City of protests

      Spain has seen hundreds of protests since the "Indignados" movement erupted in 2011, marches and sit-ins are now common sights in the capital.