Key Takeaways:
German factory orders rose more than expected in May, driven by an 85% surge in transport equipment, though the underlying trend remained flat as energy costs and geopolitical uncertainty weighed on manufacturers.
"The rebound was largely concentrated in large-scale contracts for aircraft, ships and military vehicles," said Carsten Brzeski, global head of macro at ING.
New orders increased 1.9% month-on-month in May after seasonal and calendar adjustment, data agency Destatis said Monday, beating the 0.7% median estimate in a Wall Street Journal poll. The April decline was revised to 3.2% from a previously reported 3.8% fall. Excluding large-scale orders, the gain narrowed to 1.0%.
Germany's manufacturers face a difficult backdrop as elevated energy prices following the conflict between the US and Iran push up costs, while uncertainty over global trade weighs on investment. The European Central Bank raised interest rates last month, with policymakers not ruling out another hike as they assess the broader price impact of the energy shock.
By sector, the transport equipment category — including aircraft, ships, trains and military vehicles — jumped 85% month-on-month on several large contracts. Machinery and equipment orders rose 3.7% and electrical equipment gained 5.7%, while the automotive industry posted a 3.8% decline and computer, electronic and optical products fell 7.8%. Foreign orders climbed 2.2%, supported by an 11.2% jump from the euro area, while orders from outside the euro area declined 3.2%. Domestic orders rose 1.3%.
Despite the May rebound, momentum in German industry is expected to remain weak, said Marco Wagner, senior economist at Commerzbank. "On the one hand, the Iran conflict remains a source of uncertainty, and peace is far from a done deal. On the other hand, German companies continue to suffer from an erosion of the country's competitiveness," he said.
German industry is expected to benefit over the medium term from the country's planned infrastructure and defense spending program, valued at more than $1 trillion over the coming years, though economists expect the impact to emerge only gradually. The less volatile three-month comparison showed new orders in the March-to-May period were 0.2% lower than in the previous three months. Excluding large-scale orders, however, they increased 4.1%, suggesting some underlying resilience in core manufacturing demand.
Real turnover in manufacturing rose 1.8% month-on-month in May and was 4.2% higher than a year earlier, Destatis said. On an annual basis, manufacturing orders rose 6.2% in May, accelerating from a 2.1% gain in April.
This article is for informational purposes only and does not constitute investment advice.
