European Industrial Orders Fall More Than Forecast

By Fergal O'Brien

July 23 (Bloomberg) -- European industrial orders dropped more than twice as much as forecast in May as cooling global growth and the euro's advance damped demand.

Industrial orders in the euro area fell 3.5 percent from April, when they increased less than initially estimated, the European Union statistics office in Luxembourg said today. Economists had forecast a decline of 1.3 percent, according to the median of 22 estimates in a Bloomberg survey.

Europe's manufacturing activity is contracting as global economic growth eases, reducing demand for the region's exports. European Central Bank President Jean-Claude Trichet said last week there will be a ``trough'' in growth through the third quarter before the economy gathers strength toward the end of the year.

``Industrial orders are notoriously volatile, so not too much should be read into one month's data,'' said Howard Archer, chief European economist at Global Insight in London. ``Nevertheless, May's sharp decline adds to a recent stream of worrying news on the manufacturing sector and, indeed, the euro-zone economy overall.''

A monthly index of European manufacturing probably fell to 48.7 this month from 49.2 in June, according to economists surveyed by Bloomberg. The purchasing managers' index is scheduled to be published tomorrow and a reading below 50 indicates contraction.

Soaring Prices

The euro has gained 14 percent against the dollar in the last 12 months. It fell 0.3 percent to $1.5738 as of 10:48 a.m. in London.

Europe's economy may be further undermined as soaring food and energy prices and higher borrowing costs erode household confidence. Consumer spending in France fell 0.4 percent in June, the country's statistics office said today.

The data is ``further evidence that households are cutting down on spending across the euro-area,'' said Lavinia Santovetti, an economist at Lehman Brothers in London. ``The inflation shock, the deterioration of labor market conditions, smaller wealth effects and tightening credit conditions are weighing on consumers' spending decisions.''

The increase in industrial orders in April was revised to 2 percent from 2.5 percent, the statistics office said. From a year earlier, orders fell 4.4 percent in May. Excluding transport equipment, orders declined 2.5 percent from the previous month and were down 4 percent from the year-earlier month.

To contact the reporter on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net.