German factory orders rise surprisingly in June, production likely to fall in months ahead

German June order intake data surprised positively. On a sequential basis, factory orders rose 2.5 percent and was above expectations. Excluding the always very volatile orders from the “other vehicles” sector, this still results in a rise of 1.5 percent, which is only the second plus in this core series in the last seven months.

In spite of this positive surprise in terms of orders, production is expected to fall in the months ahead, noted Commerzbank in a research report. This is because the production trend calculated on the basis of incoming orders in recent months is still below the current production level.

It is believed that the rise in orders in June would be just a pause in a continuing downward trend. The Federal Statistical Office stated that the rise is mainly because of an unusually large number of big ticket orders. If these are excluded, this results in a minus of 0.4 percent. Moreover, the mood among manufacturing firms deteriorated markedly once again in July, which speaks against a turnaround just taking place.

“Consequently, it can be assumed that manufacturing will continue to slow down the German economy in the third quarter. This increases the risk that the economy will also shrink slightly in the third quarter following the slight decline we expect for the second quarter”, added Commerzbank.

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