German Industrial Orders Decline in Negative Sign for Euro Zone

PARIS — Europe’s chances of avoiding recession appeared to have faded Friday after Germany, with the largest economy on the Continent, reported a sharp deterioration in orders for industrial goods as demand from its euro zone partners plunged.

Officials had been hoping that momentum in Germany would be sufficient to keep the European economy afloat despite the financial contagion that has gone from a series of brush fires involving the so-called peripheral euro zone members like Greece, Ireland and Portugal to a full-blown threat to the common currency.

But data Friday from Berlin showed the contagion reaching the heartland of the euro zone. Orders for industrial goods fell 4.3 percent in September from August, the Economy Ministry said, as orders from other euro members plummeted 12.1 percent. In August, overall orders fell 1.4 percent from July.

“The figures confirm that though Germany is more resilient than the rest of the euro zone, it too is slowing,” said Gilles Moëc, an economist in London for Deutsche Bank.

The German economy grew just 0.1 percent in the second quarter of 2011 from the first quarter, when the economy grew a more robust 1.3 percent. The French economy, the second-largest in the euro zone, has essentially ground to a halt.

On Thursday, the new European Central Bank president, Mario Draghi, warned of the possibility of a “mild” recession. He spoke after the E.C.B. reduced its main interest rate a quarter point, to 1.25 percent, its first cut since May 2009, after two increases this year.

Carsten Brzeski, an economist in Brussels for ING, described the decline in euro zone orders as “shocking.” German companies have a “safety net” in the form of big order backlogs, he wrote in a note, but added, “German industry has finally caught the crisis virus.”

“The financial turmoil and the economic slowdown in other euro zone countries have obviously spoiled the appetite for goods made in Germany,” Mr. Brzeski wrote.

Separately, a survey of purchasing managers by the data provider Markit showed the euro zone service sector contracting in October at the fastest rate since July 2009, with an index of service business activity falling to 46.4 in October from 48.8 in September. Business confidence also hit a two-year low, Markit said.

The survey found the German and Irish services sectors expanding modestly, but the sector contracted in a “marked” way in France, Italy and Spain.

Janet Henry, an economist with HSBC in London, said the purchasing managers data suggested “there is a growing risk the contraction may not be so mild,” estimating the euro zone economy would contract 0.5 percent in the October-December period from July-September.

Mr. Moëc estimated that the euro zone would suffer “a very shallow” recession in the last quarter of 2011 and the first quarter of next year, with a rebound in the spring. Recovery, he said, was contingent on there not being “a complete meltdown in credit origination and some kind of resolution of the crisis.”

During a speech in Frankfurt on Friday, Jürgen Stark, a member of the E.C.B.’s governing council, pointed to signs that the euro zone economy would grind to a halt in the final quarter of 2011.

“Possibly we will see, and I say this with all caution, a red zero in the fourth quarter,” Bloomberg News quoted Mr. Stark as saying. He predicted growth would remain “very weak” early next year as well, with “consequences for price and wage developments.”

Article source: http://www.nytimes.com/2011/11/05/business/global/german-industrial-orders-decline-in-negative-sign-for-euro-zone.html?partner=rss&emc=rss