German Factory Orders Surge the Most in Two Years

By Christian Vits

Aug. 6 (Bloomberg) -- German factory orders posted their biggest increase in two years in June, the latest sign that Europe’s largest economy is emerging from recession.

Orders, adjusted for seasonal swings and inflation, jumped 4.5 percent from May, the Economy Ministry in Berlin said today. That’s the most since June 2007 and the fourth successive monthly gain. Economists expected an increase of 0.6 percent, the median of 37 estimates in a Bloomberg News survey showed. Orders were still 25.3 percent lower than a year earlier.

Today’s report adds to evidence that Germany is shaking off its worst economic slump since World War II as a global recovery fuels demand for exports. While the government has forecast the economy will contract by 6 percent this year, some economists predict a return to growth as soon as this quarter. Business confidence rose for a fourth month in July.

“The factory figures are impressive, the outlook is brightening,” said Arnd Schaefer, an economist at WestLB in Dusseldorf. “We expect mildly positive growth rates in the second half of this year.”

The increase in June was driven by an 8.3 percent surge in export orders, today’s report showed. Orders from other euro- area countries spiked 13.2 percent while those from outside the region advanced 4.8 percent, the ministry said. Domestic orders rose 0.2 percent.

Emerging Markets

Volkswagen AG, Europe’s largest carmaker, said today its luxury Audi division boosted sales by 2.1 percent in July, a second consecutive increase, as it attracted a record number of buyers in China. Audi said on July 31 it’s likely to post a “significant” operating profit this year as emerging markets begin to revive.

Governments worldwide have announced about $2 trillion in economic stimulus programs to help rekindle economic growth. German Chancellor Angela Merkel’s government, which faces a national election in September, is spending about 85 billion euros ($122 billion) to fight the recession, including tax breaks and a 2,500-euro payment for consumers who scrap their old car and buy a new one.

At the same time, the European Central Bank has slashed interest rates, flooded financial markets with cash and started buying 60 billion euros of covered bonds to free up credit and encourage banks to lend to companies and households.

Munich-based Allianz, Europe’s biggest insurer, on July 22 predicted the German economy will expand 2.3 percent in both the third and fourth quarters.

“Germany will profit from the global recovery,” said Sebastian Wanke, an economist at Dekabank in Frankfurt. Still, “there’s a risk that we’ll face an economic backlash with negative growth when the car-scrapping premium ends.”

To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net