Germany’s Factory Rebound Loses Pace Even as Exports Surge

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German manufacturing continued its recovery in July, albeit at a dramatically slower pace, with orders rising for a third month after restrictions to contain the coronavirus pandemic were relaxed.

Demand increased 2.8%, less than economists expected. Export orders surged, particularly from outside the euro area.

At the same time, domestic orders for investment goods declined sharply following strong growth the previous month.

After experiencing its worst contraction in at least half a century in the second quarter, the German economy has seen a sharp rebound. Still, Bundesbank President Jens Weidmann cautioned on Wednesday that strong growth during the summer months “shouldn’t stir up false hopes” and that the recovery will be long and bumpy.

Momentum in other parts of the euro area is losing steam, according to purchasing managers’ indexes published this week, and infection rates have picked up in some parts of the euro zone.

Yet the Economy Ministry said demand should continue to recover in the coming months, as signaled by declining short-time work and improving business confidence.

European Central Bank officials meet next week to discuss policy. While they’re expected to keep their stimulus settings on hold for now, they’re likely to ramp up asset purchases once more by the end of the year, according to a Bloomberg survey of economists.

Inflation in the currency bloc has dropped below zero for the first time in four years, and the recent rise in the euro is putting extra downward pressure on prices.

— With assistance by Harumi Ichikura, and Kristian Siedenburg

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