German factory orders pick up more than expected in June

German factory orders picked up more than expected in June, underpinned by demand from outside the eurozone, according to figures released by Destatis on Tuesday.

Orders rose 2.5% on the month versus expectations of a 0.5% increase and compared to a 2% drop in May.

On the year, orders were down 3.6% in June, but this was an improvement on an 8.4% decline the month before and better than the 7% drop expected.

Domestic orders fell 1% but foreign orders rose 5% in June on the previous month. Meanwhile, new orders from the euro area declined 0.6%, but new orders from other countries were up 8.6% compared to the previous month.

The manufacturers of intermediate goods saw new orders increase 1.3% compared to the previous month, while capital goods manufacturers saw a 3.7% jump. For consumer goods, new orders fell 0.4%.

ING analyst Carsten Brzeski said the rebound in new orders on strong demand from non-eurozone countries indicates that German industry's biggest problem might not be the global slowdown.

"Despite today’s encouraging data, German industry is not out of the woods, at all. Over the last year, there has been a complete reversal of the growth-supportive trend of low inventories and filled order books to high inventories and shrinking order books. The latter does not bode well for industrial production in the coming months. There have been two occasions during the last decade with high inventories and low orders at hand; 2008/9 and 2012. The current situation looks more like 2012, which ended with a small, hardly felt, industrial recession.

"However, if the negative sentiment loop continues, painful memories of the 2008/9 period could emerge faster than anyone had hoped for. However, today’s data suggests that the worst-case-scenario does not necessarily have to materialise."