German Factory Orders Recover; Construction Shrinks Sharply

Germany’s factory orders unexpectedly grew in June but the improvement was driven by the large scale orders in the aerospace industry, data from Destatis showed on Friday.

Elsewhere, a private survey today showed that the construction sector contracted sharply at the start of the third quarter, led by a notable decline in residential building activity.

Manufacturing new orders advanced 7.0 percent on a monthly basis in June, faster than the revised 6.2 percent rise in May. The increase confounded economists’ forecast for a 1.5 percent fall.

However, excluding large-scale orders, new orders decreased 2.6 percent from the previous month.

On a yearly basis, manufacturing new orders increased 3.0 percent, reversing May’s 4.4 percent decrease.

Foreign orders posted a monthly growth of 13.5 percent in June.

Orders from the euro area surged 27.2 percent due to the strong demand in the aerospace industry, Destatis said.

Demand from non-euro area countries advanced 5.0 percent. Meanwhile, domestic orders decreased 2.0 percent.

New orders in the capital goods sector grew 9.9 percent. Orders in the intermediate and consumer goods sectors rose 2.0 percent and 7.7 percent, respectively.

Data showed that turnover in manufacturing decreased 1.6 percent on month, in contrast to the 3.4 percent rise in May.

The Purchasing Managers’ survey from S&P Global showed on Friday that the downturn in the construction sector deepened in July.

The HCOB construction Purchasing Managers’ Index, or PMI, fell to 41.0 from 41.4 in June. This was the lowest score since February 2021.

All three broad construction categories posted reduction in activity.

Housing activity registered the steepest fall since February 2010. Also, work on commercial building projects decreased at the quickest pace in 2023 so far. Meanwhile, civil engineering work fell at the slowest pace in five months.

“The German construction sector is in a tough spot right now,” Norman Liebke, an economist at Hamburg Commercial Bank, said.

Recent survey results as well as economic indicators suggested that the economy is going through a tough time.

In the latest World Economic Outlook, the International Monetary Fund projected the German economy to shrink 0.3 percent this year before rebounding 1.3 percent in 2024.

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