World Economy

German Factory Orders Slump

German Factory Orders SlumpGerman Factory Orders Slump

German factory orders plunged the most since 2009, underlining the risk of a slowdown in Europe’s largest economy.

Orders, adjusted for seasonal swings and inflation, fell 5.7 percent in August, after climbing 4.9 percent in July, the Economy Ministry in Berlin said Monday. Economists predicted a 2.5 percent decline, according to the median of 33 estimates in a Bloomberg News survey.

Deteriorating confidence is undermining a rebound in Germany’s economy from a second-quarter slump. The 18-nation euro region is struggling to sustain its recovery amid rising political tension with Russia and inflation that’s running at a fraction of the European Central Bank’s definition of price stability.

“The outlook for the German economy is subdued and I’m not sure we’ll see growth in the third quarter,” said Holger Sandte, chief European analyst at Nordea Markets in Copenhagen. “Looking forward, there are some signs for worry, from China to weakness in France, to the crisis in Russia.”

Export orders dropped 8.4 percent in August, while domestic demand slid 2 percent, the ministry said. Investment-goods orders plunged 8.5 percent and basic goods orders slid 3 percent, while consumer goods rose 3.7 percent.

While August orders were weak partly because of school holidays, they were also affected by the slowing euro-area economy and geopolitical risks, the ministry said.

Euro-area inflation was 0.3 percent last month, compared with the ECB’s goal of just under 2 percent. A slowing Chinese economy and spiraling international sanctions against Russia because of its support of separatists in Ukraine have weakened business and investor sentiment.

The euro area is still on track for a “modest economic expansion in the second half,” even though risks remain on the downside, ECB President Mario Draghi said last week. The Governing Council kept interest rates unchanged at record lows and said it will start buying covered bonds and asset-backed securities to support the economy.

Further bad news for Europe this morning... investors in Europe are at their most pessimistic in over a year, suggesting that the region is falling into recession.

That’s according to research group Sentix, whose index of investor morale tumbled to minus 13.7 this month, the lowest since May 2013.