German factory orders surge in December, defying forecasts

Signs are mounting that Germany's industrial downturn may be coming to an end, with companies receiving more orders for a fourth consecutive month in December, government data showed on Thursday.

New industrial orders jumped 7.8% month on month, the Federal Statistical Office said, far exceeding expectations. Analysts had on average forecast a decline of 2.2%.

Large-scale contracts played a key role in the surge. Excluding major orders, incoming orders would have risen by just 0.9% from the previous month, the statisticians said.

"German industry is on the verge of an upswing," said Thomas Gitzel, chief economist at VP Bank. "The order intake figures are turning hopes into hard facts: German industry will pick up the pace in the coming months."

Gitzel said the increase was likely driven by the defence sector, as the German government continues to step up military procurement.

There were strong gains in metal products manufacturing and mechanical engineering, the statistics office said. Orders for electronic and optical products also rose, although incoming orders in the automotive sector fell 6.3% month on month.

Order volumes have reached levels last seen in early 2022, said Sebastian Dullien, research director at the Institute for Macroeconomics and Business Cycle Research (IMK) of the Hans-Böckler-Stiftung.

He described the latest data as another signal that rising public spending would stimulate the economy in the year ahead.

Jens-Oliver Niklasch, an economist at Landesbank Baden-Württemberg, struck a similar tone. "This really does look very much like a turning point," he said. "For the first time in a long while, there is reason for optimism."