German Factory Orders Jump, Breaking Losing Streak

By Gabi Thesing

Oct. 7 (Bloomberg) -- German factory orders rose for the first time in nine months in August, ending their longest-ever losing streak.

Orders, adjusted for seasonal swings and inflation, jumped 3.6 percent from July, the Economy Ministry in Berlin said today. That's the most since October 2007. Economists expected a gain of 0.5 percent, the median of 28 forecasts in a Bloomberg News survey showed. From a year earlier, orders dropped 7.6 percent.

``Unfortunately, this is just a technical payback for eight months of decline,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt, who expects Germany's economy to shrink 0.2 percent next year. ``The trend is down and there is no escaping the recession.''

The financial-market crisis is escalating in Europe, with stocks plunging, credit costs soaring and governments forced to bail out banks. Germany's economy contracted 0.5 percent in the second quarter and may not have recovered in the third, raising the possibility of a recession.

Factory orders declined 1.3 percent in July, the ministry said in the statement, revising an initial estimate of a 1.7 percent drop. This month's increase was driven by a 3.7 percent gain in domestic orders and a 3.5 percent advance in sales abroad, which was entirely driven by orders from outside the euro region. Sales of investment goods outside the region surged 23 percent.

Big-Ticket Orders

There was ``disproportionately strong big-ticket order intake in August,'' the ministry said, adding a below-average number of holidays may also have played a role. ``The outlook for industrial production over the coming months remains muted,'' the statement said.

The VDMA lobby said last week that orders for plant and machinery declined for a fourth straight month in August from a year earlier, as a stronger euro and slowing global economic growth curbed foreign demand. German business confidence last month fell to a lowest level in more than three years.

The 15-nation euro area, which takes just over 40 percent of Germany's exports, is also teetering on the brink of a recession after contracting 0.2 percent between April and June.

Orders for German goods from the region slumped 9.3 percent in August, today's report showed.

Credit Crunch

The world's biggest financial institutions have recorded almost $600 billion in writedowns and losses tied to the U.S. mortgage market since the start of 2007, driving Lehman Brothers Holdings Inc. into bankruptcy on Sept. 15 and forcing governments to rescue banks in the U.S. and Europe.

Europe's Dow Jones Stoxx 600 Index tumbled the most since 1987 yesterday, dropping 7.6 percent.

General Motors Corp.'s Opel division plans to reduce Europe- wide production by 40,000 vehicles by the end of the year and has already halted production at two German plants, Bild-Zeitung reported today.

Still, the price of oil has retreated almost 40 percent from its July record, damping inflation and lifting German consumer confidence for the first time in five months, GfK AG's index for October showed Sept. 25. Unemployment fell more than economists forecast in September as machine makers hired people to work off an order backlog.

Slower inflation may also prompt the European Central Bank to reduce borrowing costs from a seven-year high. ECB President Jean-Claude Trichet said on Oct. 2 that inflation risks ``have diminished somewhat'' and that policy makers discussed cutting the benchmark rate from 4.25 percent.

Euro-region inflation slowed to 3.6 percent in September from a 16-year high of 4 percent in July. That's still above the ECB's 2 percent limit.

To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net