Geopolitical Risks Weigh on Germany's Factory Orders
Bloomberg News
German factory orders (GRIORTMM) dropped by the most in more than 2 1/2 years in a sign that geopolitical tension with Russia is leaving its mark on Europe's largest economy.
Orders, adjusted for seasonal swings and inflation, slid 3.2 percent in June from May, when they fell a revised 1.6 percent, the Economy Ministry in Berlin said today. Economists forecast an increase of 0.9 percent, according to the median of 30 estimates in a Bloomberg News survey. The decline is the steepest since September 2011.
The European Union agreed last week on its widest-ranging sanctions yet over Russia's backing of rebels in eastern Ukraine and Germany is feeling the pain, with the Bundesbank citing geopolitical concern as contributing to a probable stagnation of the economy in the second quarter. Russia counts Germany as its biggest trading partner in Europe.
'Sentiment in Germany deteriorated, companies think twice before investing, and the engine of the economy is stuttering a bit,' said Holger Sandte, chief European analyst at Nordea Markets in Copenhagen. 'As long as the situation in Ukraine doesn't escalate the impact should be limited. We expect to see growth again in the third quarter.'
German Vice Chancellor Sigmar Gabriel this week blocked a deal for Rheinmetall AG to build a military training center east of Moscow in light of the sanctions. The contract has a value of more than 100 million euros ($134 million) and the Dusseldorf-based company had planned to build more facilities in Russia.
ECB Meeting
Export orders dropped 4.1 percent in June from the previous month, including a 10.4 percent slump in the euro area, and domestic orders fell 1.9 percent, today's report showed. Orders for investment goods slid 6.4 percent and those for consumer goods were down 0.4 percent. Basic-goods orders climbed 1.6 percent. Total orders dropped 4.3 percent from a year ago.
'Geopolitical developments and risks more than anything led to a clear reticence in orders,' the Economy Ministry said. 'It is therefore to be expected that industry develops rather moderately in coming months.'
The Bundesbank predicted in June that the German economy will expand 1.9 percent this year and 2 percent in 2015. That compares with European Central Bank forecasts for the euro area of 1 percent in 2014 and 1.7 percent next year.
ECB officials are gathering in Frankfurt today and will announce their monthly interest-rate decision tomorrow. They'll leave the benchmark rate unchanged at a record low of 0.15 percent, according to all 57 economists in a separate Bloomberg News survey.
Mario Draghi, the ECB president, unveiled a range of measures in June to fight the threat of deflation in the currency bloc and policy makers including Governing Council member Ardo Hansson have indicated the central bank will refrain from further action until the impact of the latest stimulus is clear.
To contact the reporter on this story: Stefan Riecher in Frankfurt at sriecher@bloomberg.net
To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net Paul Gordon, Zoe Schneeweiss
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