June German factory orders point to fragile recovery, Barclays says

Factory orders bounded ahead in the euro area's largest economy last month thanks to string domestic demand, but economists said the underlying trends pointed to a "fragile" recovery.

Manufacturing sector orders rose by 1.0% month-on-month, according to the Federal Office of Statistics.

Economists had projected a rise of 0.5% on the month.

May's tally was revised to show a 1.1% gain on the month, up from a prior estimate of growth of 1.0%.

In comparison to May, domestic orders increased by 5.1% while those from abroad shrank by 2.0% (euro area: -2.4%; extra-eurozone: -1.5%).

Orders for intermediate goods were strongest, increasing by 3.7%, while those for consumer goods were up by 2.3%.

Capital goods orders fell by 0.8%.

In reaction to Friday's data, Barclays Research highlighted how quarter-on-quarter orders were up by just 0.8% as a result of the "sizeable" contraction seen in April.

Indeed, demand coming mainly from domestic investment goods revealed that the recovery in factory orders growth remained fragile, the investment bank said.

Hence, given that factory orders were a "strong" leading indicator of real activity, Barclays said it expected German GDP to slow to a 0.6% quarter-on-quarter pace ovr the three months to June and subsequently to a 0.5% clip in the last two quarters of the year.

"Despite strong GDP growth, rising wages and a booming labour market, the German economy appears to be struggling to rebalance towards private consumption. However, factory orders indicate that the German economy remains highly vulnerable to a slowdown in global trade either through protectionism or weaker demand in Germany’s main export partners, such as China, the UK or the US."