German factory orders surpassed expectations for 3 consecutive months, and economic recovery is gradually showing

The Zhitong Finance App learned that according to data released by the German Federal Statistical Office on Thursday, factory orders in July increased 2.5% month-on-month. Previously, the June data was revised to a 3.7% increase. This result far surpassed the median forecast of the 21 economists in the market survey; only one forecast was higher than the actual value. As the pace of recovery in Europe's largest economy accelerated, the month-on-month increase in German factory orders exceeded expectations, and recorded growth exceeding expectations for the third month in a row.

Judging from the itemized data, the current increase in orders was mainly driven by large orders for ships, trains, and airplanes. However, after excluding large orders, there was a decline in overall orders, with the automotive industry showing the most significant decline. The less volatile three-month rolling data also confirmed this divergent trend — inflation-adjusted total orders increased 8% from May to July, and strong demand from non-Eurozone countries offset the decline in mainland Germany and other European markets.

This division coincides with the current plight of the German automobile industry. According to the data, German automobile and parts exports fell 5.8% year on year in the first half of this year. Among them, exports to the US fell by as much as 17.2%, and the number of people employed in the automobile industry has fallen to its lowest level since 2005. The operating profits of car companies such as Volkswagen and BMW continued to be pressured, and they had to close their factories and lay off employees one after another.

Recent data shows that as exports improve, the government invests hundreds of billions of euros in military and infrastructure upgrades, and companies increase investment in artificial intelligence, the German economy is gradually recovering from years of sluggishness.

What particularly boosted market confidence was that the final value of Germany's gross domestic product (GDP) for the second quarter was revised to 0.3% from 0.2% of the previous initial value. At the same time, various sentiment indices have also rebounded, and manufacturing sentiment hit the best level since 2022 in August.

After taking office, German Chancellor Mertz launched a large-scale special fund to improve transportation and digital infrastructure, promote scientific and technological innovation, and develop the defense industry. The German Ministry of Economy made it clear when the June order data was released that the upward trend in new manufacturing orders was mainly due to strong domestic demand, and specifically stated that “the significant growth in capital goods producers may be related to public procurement projects for the modernization of the Bundeswehr and contracts under infrastructure and climate neutrality special funds.”

Furthermore, large-scale investment by enterprises in the field of artificial intelligence has also become an important growth engine. The growth rate of new orders in the Eurozone manufacturing industry hit the fastest level in 40 months, and the explosive growth in demand for artificial intelligence-related technology products is one of the main driving factors.

However, the risks must not be ignored. The progress of reforms on the Berlin side is being constrained by internal friction within the ruling coalition. Competition from China is still fierce, and interest rates in the Eurozone are likely to rise next week to cope with inflationary pressure caused by the continuing unfolding situation in Iran.