Recession worries in Germany deepen

Recession worries at the heart of Europe deepened as it was revealed that factory orders in Germany declined unexpectedly for the sixth straight month. With inflation and interest rates rising, it seems rather unlikely that Germany can escape recession despite the lowest unemployment levels since reunification.

A recession in Germany would be a big blow to the decoupling theory that Europe and Asia could continue to grow in the face of a dramatic slowing in the US.

German manufacturing orders unexpectedly declined for a sixth straight month in May, further evidence that Europe’s largest economy is losing momentum.

Orders, adjusted for seasonal swings and inflation, fell 0.9 percent from April, the Economy Ministry in Berlin said today. Economists expected a gain of 0.8 percent, according to the median of 37 forecasts in a Bloomberg News survey. Orders fell 2 percent from a year earlier.

German and European manufacturing growth is faltering as near-record oil prices push up inflation and damp the spending power of companies and households just as a strong euro weighs on exports. The European Central Bank raised interest rates yesterday to a seven-year high to combat the threat of an inflation spiral.

“The boom is well and truly over,” said Matthias Rubisch, an economist at Commerzbank AG in Frankfurt. “Now we’ll have to pray the economy doesn’t go in the other direction.”

The last time orders fell for five consecutive months or more was in 1992. The German economy shrank the following year.

Bloomberg News, 4 Jul 2008

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