The Zhitong Finance App learned that German factory orders have rebounded to a certain extent, driven by the recovery of the automobile industry, indicating that Europe's largest economy is still showing resilience in a turbulent global macroeconomic environment. Demand for factory orders increased 4.4% month-on-month in September. In contrast, the previous month's order decline was the biggest since January. However, the September order data was slightly lower than the 4.5% increase that economists had previously agreed to expect.
The German economy grew by 0.2% in the third quarter, faster than expected, and the Bundesbank expects the growth momentum to increase “significantly” thereafter. Public spending has always played a key role, but it has also caused fluctuations in monthly data.
September orders were boosted by a rebound in the automotive industry and increased demand for machinery. After excluding large factory orders, the overall month-on-month increase was 5.1%. Looking at the third quarter as a whole, orders increased by only 0.2%.
The recovery in orders has brought a positive signal to the prospects for subsequent industrial production. However, with regard to the industrial production data for September, which has yet to be released, economists expect output to fall slightly after strong growth in August.
Overall, the report sent a positive signal for industrial production. Economists had almost unanimously predicted that industrial production data for September could decline slightly after strong growth in August.
Business confidence has also picked up, making analysts more optimistic that the economic growth rate of 1% this year is expected to accelerate further in 2027.
Investors, however, still have reason to be cautious. Automakers are struggling to cope with high costs and competition from China. Schaeffler, a major global automotive and industrial supplier, said this week that it plans to close five European factories, four of which are located in Germany, and cut nearly 3,500 jobs, further increasing the thousands of layoffs previously announced throughout the industry.
German Chancellor Friedrich Mertz proposed strengthening ties between Asia and the European Union during his visit to Asia last week because both sides are facing pressure from China. Mertz's trade stance with China is getting tougher. Recently, he also reached an agreement with French President Emmanuel Macron, paving the way for the EU to adopt tougher trade tools.
The most positive sign of this German factory order report is that after excluding large orders, the increase was 5.1%, indicating that the rebound was broad; however, the overall increase in the third quarter was only 0.2%, which still mainly reflected the recovery after the previous decline. Public spending can supplement demand, but it cannot directly eliminate the cost disadvantage and competitive pressure of the German automobile industry.
Germany's factory orders rebounded 4.4% month-on-month in September, and demand for automobiles and machinery picked up, compounded by 0.2% economic growth in the third quarter, indicating that Europe's largest economy is still resilient in recovery. However, quarterly orders increased by only 0.2%, and the automobile industry continued to close and lay off workers, which is enough to show that financial support and industry restructuring are taking place at the same time. What the market is setting is whether this industrial restoration can withstand the squeeze of rising energy costs and interest rates.
Only by converting orders into delivery, recovering capacity utilization, and improving profit margins can we form a more solid foundation for industrial stocks to rise. At the same time, growth resilience mitigates the ECB's concerns about the economic downturn, while rising inflation limits room for relaxation. Therefore, improvements in industrial profits and pressure on bond yields may occur simultaneously, and European assets may not necessarily rise at the same time.
The overall European inflation trajectory is clearly divided: Germany's Harmonized Consumer Price Index (HICP) fell from 3.3% to 2.8% in October, and core inflation fell from 2.5% to 2.3%; overall inflation in the Eurozone rose further from 3.2% in August and 3.8% in September to 4.0% in October, energy prices rose 20.8% year on year, service inflation rose to 3.3%, and core inflation remained 2.5%. The cooling of prices in Germany is not enough to change the inflationary pressure faced by the Eurozone as a whole.
Commerzbank economist Ralph Solvin pointed out that temporary fuel tax cuts are driving inflation back in Germany, but this trend is difficult to continue, and inflation may soon rise again. The ECB kept the deposit mechanism interest rate unchanged at 2.50% on October 29; as of November 4, another interest rate hike in December has become the mainstream expectation in the market, and the financial market will include two to three interest rate hikes in the next year. The pricing logic behind the market's anticipated ECB policy path is: the longer the energy shock continues, the more likely it is that companies will shift costs to goods and services, which in turn affects wage and inflation expectations.