German Industrial Output and Orders April 2008

Industrial production in Germany, Europe's largest economy, declined for the second consecutive month in April, the second report in as many days to suggest Europe's largest economy is cooling. Output, adjusted for seasonal swings and inflation, fell 0.8 percent from March when it fell 0.8% from February. Year on year output was up by 4.8% but the rate is still considerably down from the strongest points in the current expansion.



Production of intermediate goods dropped 2.2 percent in the month, while consumer goods and construction output declined 2.5 percent and 2.9 percent respectively, the ministry said.

Germany's economy is losing momentum as near-record oil prices push up inflation and crimp company and household spending power, just as a surging euro weighs on exports, and slowdowns in Italy and Spain also act as a drag. The outlook is also far from promising since European Central Bank President Jean-Claude Trichet said yesterday policy makers rather then loosening interest rates may even raise borrowing costs next month to curb record inflation, further damping the expansion.





Annual price gains in the euro area last month accelerated to 3.6 percent. In its quarterly forecasts, the ECB said yesterday that inflation, which it aims to keep just below 2 percent, will average about 3.4 percent this year and 2.4 percent next.

Faster inflation is starting to hurt growth. European retail sales declined 2.9 percent in April, more than three times as much as economists forecast, a report showed earlier this week. German car sales fell 6 percent last month, the VDA auto-industry trade group said June 3.


Adding to companies' woes, the euro has gained 15 percent against the dollar and 17 percent against sterling over the past year, while the price of oil has more than doubled in the same period, topping $135 to set a record on May 22.

Manufacturing orders in Germany also fell for the fifth month in succession in April , figures showed yesterday, the longest streak since 1992, as demand from the euro area slumped. Orders, adjusted for seasonal swings and inflation, fell 1.8 percent from March, according to the Economy Ministry in Berlin. This is the first time since July 1992 that manufacturing orders dropped for five consecutive months.

Foreign manufacturing orders fell 3.8 percent in the month, while domestic orders gained 0.3 percent, the ministry said yesterday. Demand from the euro-region countries slid 5.6 percent and orders from outside the currency area dropped 2.3 percent.


















Evidently not all German companies are suffering to the same measure.German plant and machinery orders rose the most in more than a year in April, driven by sales abroad, according to the VDMA machine makers association Orders increased 35 percent from a year earlier, that's the most since March 2007. Export orders increased 44 percent and domestic orders gained 19 percent from a year ago.

``Foreign orders were additionally fueled by large plant orders,'' VDMA Chief Economist Ralph Wiechers said in the statement. ``The order increase of 11 percent since the beginning of the year is a good characterization of the order situation in the machinery sector.''

In the three months through April, orders increased 12 percent from a year earlier, today's report showed. Domestic orders increased 7 percent and foreign orders rose 14percent. VDMA surveys all large German machinery makers and most small ones. Its statistics capture orders at companies that employ 15 percent of all factory workers and account for 13 percent of total manufacturing sales.

Germany Services PMI May 2008

Euro zone services activity slipped close to contraction in May, in line with expectations, as growth took a sharp hit in France, while inflationary pressures mounted, a key survey showed on Wednesday. The RBS/NTC Eurozone Services Purchasing Managers index fell to 50.6 in May, the same level as the flash estimate and as forecast by economists, from 52.0 in April.


The rate of expansion in Germany's services sector slowed in May, hit by a deterioration in business expectations and firms' worries about rising input costs.

NTC Research's business activity index for German services firms fell to 53.8 from 54.9 in April, holding above the 50 mark separating expansion from contraction for the fourth month running but weighed down by concern about the business outlook.
The figure was marginally above the flash estimate of 53.7.

"May's PMI data point to further solid growth of activity in the German service economy, notwithstanding the ongoing underperformance of the Financial Intermediation sector," said Tim Moore, economist at NTC Economics, which compiles the data. However, the overall business outlook deteriorated in May amid weaker gains in new work and the steepest fall in backlogs for five years."

The business expectations component fell to 48.0 from 51.2 in April, registering the most pessimistic reading since November 2007. This deterioration partly reflected the sharpest decline in work in hand in almost five years, NTC said.

The deterioration in the services sector growth outlook is in harmony with other recent economic indicators from Germany which have suggested that Europe's largest economy is now slowing significantly after a reasonably dynamic first quarter.

Retail sales fell sharply for a second straight month in April and unemployment rose in May for the first time in more than two years. The fall in retail sales raised questions about Germany's ability to cope with soaring fuel and food prices. High fuel and food prices sparked an acceleration in German inflation in May to 3.0 percent from 2.4 percent in April.


The services PMI prices charged component edged up to 53.5 from 53.3 in April. Another on input prices registered 61.7, slowing from 62.7 but holding well above the 50 level separating expansion from contraction.

"Average input cost inflation remained at an elevated level in May," NTC said. "Anecdotal evidence overwhelmingly suggested that sharply rising fuel prices, as well as robust wage inflation, had driven up costs at (panel members') units in May," it added.

Germany Manufacturing PMI May 2008

Germany's manufacturing sector continued to register growth in May, though export orders fell for the first time in almost five years in a sign the strong euro may well be beginning to hurt, a survey showed on Monday.


The NTC/BME Purchasing Managers index (PMI) was 53.6 in May, unchanged from April. Readings above 50 indicate growth in the sector, below that level, contraction. A preliminary "flash" estimate of the May index had yielded a reading of 53.5.




The survey, which is based on a monthly poll of about 400 companies, showed that manufacturers accelerated new hiring in May, but that growth in overall orders eased.
The PMI's sub-component index for new export orders declined to 49.2 from 51.8, indicating the first contraction in demand, and the lowest reading, since July 2003.


Euro zone manufacturing activity generally cooled further in May as factory output remained near a three-year low even while edging up slightly from the earlier flash estimate. There is also increasing evidence of a widening divergence between the big four economies in the 15-nation currency bloc with Germany and France continuing to prop-up a contracting Italy and a Spain which is in "free fall". This divergence is only going to add to the headaches over at the European Central Bank, which is already pretty worried about the continuing high inflation.



The RBS/NTC Eurozone Purchasing Managers Index for the manufacturing sector eased to 50.6 in May, down from April's 50.7 but above the earlier flash estimate of 50.5.


In a statement, NTC said a further sign that the outlook in Germany had worsened in May was that manufacturers had accumulated stocks of finished goods at the fastest pace in almost seven years.

"The decline in manufacturers' new export orders suggests a key engine of the current growth cycle ... has begun to subside amid pressure from the strong euro and weakening economic conditions in foreign markets," said NTC economist Tim Moore.

Recent economic indicators in Germany have provided a mixed message on the health of Europe's largest economy. The Ifo institute's gauge of business confidence in Germany rose for the fourth time in five months in May, but retail sales slumped for a second straight month in April.





Last month also saw the first seasonally adjusted increase in unemployment in Germany for over two years, prompting some to predict the country's labour market improvement was ending. A resurgence in inflation in May also stirred fears that rising prices would impact negatively on consumer spending, which accounts for nearly 60 percent of the economy.

NTC said the May survey data pointed to strong inflationary pressure in the manufacturing sector, with average input costs rising at their sharpest since July last year.

"A number of companies commented on higher steel and oil-related costs at their plants," NTC said. "Firms responded to the latest squeeze on their margins with a robust increase in factory gate prices, with the rate of output charge inflation only fractionally less marked than April's recent high."