10 January 2003, 14:27  German Factory Orders Rise, Boosted by Foreign Demand

Berlin, Jan. 10 (Bloomberg) -- German factory orders unexpectedly rose in November for a second month, led by demand from abroad, a sign Europe's largest economy may have avoided contracting in the fourth quarter. Orders to factories, whose production accounts for about a fifth of the economy, rose 1.7 percent from October, the biggest increase in six months, the Economy and Labor Ministry said. Economists had forecast a drop of 0.6 percent. ``Only exports are currently saving the economy,'' Wolfgang Jahrreiss, chief executive officer of Gardena Holding AG, Germany's largest maker of gardening tools, said. The company ``had higher sales in Scandinavia, France, Italy and Spain.''
Exports, which account for about a third of Germany's economy, boosted the country's trade surplus to a record high in November, a report earlier today showed. At the same time, business confidence fell to an 11-month low and unemployment rose to a 4 1/2-year high last month as the economy struggles to grow. Bookings were boosted by foreign demand for individual big- ticket items such as airplanes and industrial plants, the ministry said. The increase in orders was led by a 7 percent jump in foreign orders for consumer goods such as toasters and televisions. From a year ago, orders increased 5.9 percent. Deutz AG, a German maker of diesel engines, said Tuesday it expects sales to rise this year, helped by demand from China. Germany's benchmark DAX index extended its gains following the release of the report. German stocks rose 1.2 percent today to 3075.37 at 12:10 p.m. Frankfurt time.
Looking to the U.S.
Manufacturers are looking to the U.S., where President George W. Bush's $670 billion tax cut proposals may help spur sales to the world's largest economy. The number of U.S. workers filing jobless benefit claims fell below 400,000 for the second time in the past three weeks, suggesting consumer demand may pick up. Germany sells about a 10th of its products to the U.S. economy, which probably expanded at a 1.5 percent annual pace in the final three months of last year, a Bloomberg News survey last month showed. Growth will accelerate to a 2.5 percent pace this quarter, the survey showed. ``The trade figures don't change the outlook for German growth,'' said Holger Schmieding, co-head of European economics at Bank of America Corp. in London. ``The German economy probably shrank slightly in the fourth quarter.'' A rising euro may hurt exports. The currency reached a three-year high of $1.0538 Thursday amid investor concern a U.S. recovery is faltering and on signs of a possible war in Iraq. Weak demand at home is damping growth. Economics and Labor Minister Wolfgang Clement yesterday said growth this year may be as little as 0.6 percent.
Consumer Pessimism
German unemployment in December rose by 28,000 to 4.2 million people, adjusted for seasonal swings, a government report showed. That's hurting retail sales, which declined 3.2 percent in November from October, the most in more than three years. Consumer confidence probably fell to the lowest in eight years in January, on concern about unemployment, tax increases and a possible U.S.-led attack on Iraq, the GfK market research company said earlier this month. Adam Opel AG, General Motors Corp.'s German unit, is scaling back production capacity by 15 percent in an attempt to return to profit. Mercedes and Smart sales probably won't grow this year, Juergen Hubbert, head of the two DaimlerChrysler AG divisions, said at the Detroit car show. Germany's DAX Index was the world's worst performer last year among 73 indexes that Bloomberg tracks, after posting the biggest annual drop since 1948. Its 44 percent slide compares with a 24 percent drop in the FTSE 100 Index and a 17 percent decline in the Dow Jones Industrial Average.
Tax Increases
Chancellor Gerhard Schroeder's tax increases may limit German economic growth to less than 1 percent this year, the head of his ``Five Wise Men'' panel of economic advisers said in an interview. ``It's a fairly grim outlook -- the first three quarters seem almost lost,'' Wolfgang Wiegard said. The government on Jan. 1 increased taxes on gasoline by 3 euro cents (3 U.S. cents) a liter and on electricity by 0.25 cents per kilowatt-hour, and raised pension contributions paid by companies and employees. Other steps included raising the rate of value-added tax on certain goods and cutting tax breaks for homeowners. The European Central Bank left borrowing costs at a three- year low of 2.75 percent Thursday and signaled it's in no hurry to pare rates further. The dozen nations that use the euro may contract in the first quarter after a worse-than-expected fourth quarter, the European Commission said. Crude oil prices rose yesterday after the U.S. sent three B-1 bombers to Qatar as part of a military buildup for a possible attack on Iraq, raising concern about supply disruptions from the Middle East. ``The risks to the downside have somewhat increased,'' in part because consumers and investors are still worried about a possible war in Iraq, ECB President Wim Duisenberg said yesterday. Still, ``we do expect very moderate growth and a slow resumption of growth throughout the year.//www.quote.bloomberg.com

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