German industrial orders rose in June against expectations for a drop, driven by sharp gains in the aerospace sector that left analysts divided over whether the reading represented a sustainable upturn.
German industry has been mired in the doldrums, with a PMI survey on Tuesday showing a manufacturing sector downturn deepened in July.
Friday’s federal statistics office data showed incoming orders rose by 7.0% from May on a seasonally and calendar adjusted basis. A Reuters poll of analysts had pointed to a drop of 2.0%.
Orders in the transport equipment sector excluding motor vehicles rose 89.2%, the office said, attributing that to one major aerospace transaction.
Excluding large orders, overall monthly activity would have declined by 2.6% in June.
“In this respect, today’s plus is hardly sustainable,” Commerzbank’s chief economist Joerg Kraemer said, adding that the trend in industrial orders was still downwards.
In the quarter to June, orders rose 0.2% from the previous three months.
The weak global economy and high energy costs remain a burden for the sector, said Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe bank.
“The thumb over the industrial sector is not turning upwards. For the time being, it will probably only be enough for a sideways trend,” he said.
Overall, foreign orders rose by 13.5% in June, while domestic ones fell 2.0%.
The statistics office also revised data for May to a 6.2% increase, down from 6.4% previously. In March, orders had slumped 10.9%.
Thomas Gitzel, chief economist at VP Bank, said the overall picture for 2023 looked relatively encouraging so far, noting that with the exception of March, new orders had steadily increased month on month.
“The situation is not as bleak as Germany’s economic situation is currently being portrayed as the sick man of Europe,” he said.
The German car market extended its rebound in July, official data showed Friday, driven by booming electric vehicle sales as supply chain woes continue to ease.
In total, 243,277 new cars were registered in Europe’s biggest economy last month, an 18.1-percent increase from a year earlier, according to the KBA federal transport authority.
Car sales have been rebounding since the start of the year, although they still remain substantially below the level recorded in 2019 before the coronavirus pandemic.
Manufacturers in Germany, home to industry titans like Volkswagen and BMW, produced 300,300 vehicles in July, 20 percent more than in the same period last year, according to the VDA industry association.
The sector is gradually recovering from supply chain issues -- notably when it comes to semiconductors -- that had slowed deliveries to customers.
In particular, the market was boosted by registrations of electric vehicles, which rose almost 70 percent in July year on year, making up 20 percent of all registrations.
But analysts warn that the end of electric car subsidies for company fleets from September will have a dampening effect.
“The current boom in new electric registrations is likely due in large part to the fact that commercial owners... still want to benefit from the government subsidy,” said EY analyst Jan Miller.
It is “likely to run out of steam very soon,” the analyst added.
Observers have also warned that the weakening economy in Germany, where growth is stagnating amid high inflation and rising interest rates, will weigh on the market.
Euro zone yields rose on Friday after German industrial orders jumped in June, while investors await crucial U.S. data after Thursday’s numbers failed to provide further clues about whether the Federal Reserve would hike rates one more time this year.
German orders rose against expectations for a drop, driven by gains in the aerospace sector that left analysts divided over whether the reading represented a sustainable upturn.
Germany’s 10-year government bond yield, the euro area benchmark, rose 5.5 basis points (bps) to 2.61%, its highest level in almost three weeks.
The German yield curve slightly deepened its inversion after reaching the least inverted level since mid-June on Thursday.
The gap between 2-year and 10-year yields was at -60 bps after hitting -59.2 bps the day before.
Analysts said the spread between short-dated and long-dated yields might further narrow its inversion as more apparent signs of a global economic slowdown or falling inflation are required to justify the rate cuts that are currently reflected in the inverted yield curves.
Underlying inflation has probably peaked, pointing to slower growth in other prices too, the european Central Bank said.