German factory orders slide in latest sign of eurozone weakness

German factory orders unexpectedly dropped in March and February was revised lower, confirming a weak start to the year in Europe’s largest economy and raising concern over the strength of the eurozone growth.

Orders slid 0.9%, compared with a median estimate for a 0.5% increase in a Bloomberg survey. With February’s figure revised to minus 0.2% from a gain of 0.3%, orders have now dropped for three straight months for the first time since 2015.

The continued slump, despite record-low unemployment and signs that wage growth is picking up, meshes with a pattern of weak data across the eurozone that has prompted the European Central Bank (ECB) to hold off from discussions on ending its stimulus measures.

While the German figures may signal that factories are running into capacity constraints that will take time to overcome, they might also reflect a fundamental slowdown in demand.

The growth in orders in the first quarter was “gentler” after a dynamic expansion in the second half of 2017, but “companies’ order books are still very well-filled,” the Economy Ministry said in a statement.

“Part of the weakness in March was driven by big-ticket orders” said Oliver Rakau, chief German economist at Oxford Economics in Frankfurt. “But if you look at core orders they look better, especially the strength of domestic orders which may be an initial sign of a bounce-back in the second quarter.”

April PMI

Export orders slid 2.6%, with a 3% decline from the eurozone and 2.5% drop outside the currency bloc. Domestic orders climbed 1.5%. Total orders rose 3.1% from a year earlier.

Orders for investment goods decreased 1.8%, though those for consumer goods rose 2.2%.

The euro weakened after the report, and was down 0.3% at $1.1928 at 10:08 Frankfurt time.

The Bundesbank has so far brushed off concerns, citing exceptional factors including strikes and a flu epidemic. Still, a purchasing managers index for April published Friday came in weaker than expected as services activity cooled.