UPDATE 1-Bundesbank optimistic on German growth, orders fall

Fri Dec 6, 2013 7:18am EST

Related Topics

* Orders fall more than forecast but trend still upward

* Bundesbank raises 2013, 2014 growth forecasts slightly

* Hard data at odds with recent sentiment surveys

By Michelle Martin

BERLIN, Dec 6 (Reuters) - German industrial orders posted their biggest fall in nearly a year in October but the trend remained upward and the Bundesbank sent a more positive signal by raising its forecasts for growth of Europe's largest economy this year and next.

Factories experienced their fastest decline in contracts since November of last year, with seasonally-adjusted orders dropping by 2.2 percent on the month, data from the Economy Ministry showed.

That was bigger than the 0.6 percent drop forecast in a Reuters poll and steeper than even the lowest estimate for a 1.8 percent drop.

But the data came after the European Central Bank kept interest rates on hold on Thursday and gave no sign that it was in any sort of hurry to ease monetary policy further - all but quelling market speculation of any near-term action to support growth.

Economists cautioned against reading too much into the October orders data from Germany, which followed a sharp rise in September. For the two-month period, orders were up 1.9 percent, on average.

"German new orders have been on a zig-zag trend for more than a year," said Carsten Brzeski, senior economist at ING, adding that the underlying trend remained positive.

"Combined with the low level of inventories, industrial production should remain growth-supportive in the coming months," he said.

Earlier, the Bundesbank had lifted its forecasts for economic growth to 0.5 percent for this year and 1.7 percent for next year. In June it had forecast growth of 0.3 percent and 1.5 percent respectively. The new estimates brought them in line with the German government's predictions.

The picture in many other euro zone countries is more bleak, even if some stragglers are returning to growth after years of economic contraction.

ECB Policymaker Ewald Nowotny acknowledged on Friday that record low interest rates were not a cure-all. In an echo of President Mario Draghi's news conference on Thursday, he said the bank was thinking about programmes similar to those developed by the Bank of England's to raise the flow of credit to small business.

CONTRADICTORY EVIDENCE

The Economy Ministry said the decrease in orders was driven solely by a 5.2 percent plunge in capital goods orders due to volatile large orders and stressed that the overall trend remained positive.

Total foreign bookings were down by 2.3 percent while domestic orders fell by 2.0 percent.

The backward-looking orders data contrasts with surveys in November that showed the manufacturing sector expanding at its fastest rate in nearly 2-1/2 years and manufacturers becoming more upbeat about their current business situation and their future prospects as they expected exports to gain momentum.

Friday's data is also at odds with recent sentiment surveys which have shown business, investor and consumer morale brightening and the private sector growing faster.

"It's becoming clear that the hard industrial data cannot keep step with the sentiment indicators such as Ifo's business climate index," said Ulrike Kastens at Sal Oppenheim.

"There's not a lot of dynamism in industry at the moment."

Other hard numbers on the economy have indeed been more sobering. German GDP rose by just 0.3 percent in the third quarter and unemployment climbed to its highest level in 2-1/2 years in November.

The German economy put in a strong performance during the early years of the euro zone crisis but weakened last year and suffered a subdued start to 2013. It bounced back in the second quarter and grew modestly in the third thanks to domestic demand as foreign trade dragged.

The Bundesbank said it expected the German economy to be "fairly strong" in the fourth quarter and first three months of 2014 as long as bad weather does not slam the brakes on. It said exports should rebound significantly at the end of this year.

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