German orders post sharpest increase in 1.5 years

The preliminary estimate of euro zone Q3 GDP confirmed the advance estimate, which showed that the euro zone economy grew by 0.2% Q/Q in the three months to September. The first release of the breakdown shows that household consumption picked up (0.3% Q/Q from -0.5% Q/Q) in the third quarter, in line with expectations. Also investments rebounded in the July to September period (0.1% Q/Q from 0.0% Q/Q), but less than expected (0.6% Q/Q). Finally, also net-exports supported growth (contributed 0.2% Q/Q to growth) as the increase in exports (1.5% Q/Q) was bigger than the jump in imports (1.1% Q/Q). Government consumption was flat in the third quarter, while net inventories dragged GDP growth down by 0.2% Q/Q. Already for a second straight quarter, investments stayed broadly unchanged in the euro area, which is a sign that factories are feeling the pain from the ever spreading debt crisis and weakening demand. For now, household consumption and net exports kept the euro area out of recession, but it is unlikely that this will continue in the coming quarters. As indicated by the ECB last month and the OECD more recently, a mild recession is likely at the end of this year and probably early in 2012.

After falling sharply in each of the previous three months, German factory orders showed an impressive rebound in October, rising at the sharpest pace since March 2010. On a monthly basis, German factory orders jumped by 5.2% M/M, while the consensus was looking for an increase by only 1.0% M/M. The previous figure was downwardly revised from -4.3% M/M to -4.6% M/M. The details indicate that strength was mainly based in foreign orders (8.3% M/M), but also domestic orders rose for the first time in three months. The sector breakdown shows that strength was broadbased and led by capital goods orders (7.8% M/M). Orders for intermediate goods increased by 2.0% M/M and orders for consumer goods by 1.3% M/M. The strong rebound comes after three steep declines and is therefore no real surprise. It remains however an encouraging sign, suggesting that the German economy is holding up relatively well, as was already suggested by IFO indicator recently.