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Weak euro zone June orders fuel recession fears

BRUSSELS - Euro zone industrial new orders fell by a less-than-expected 0.3 percent in June, data from the European Union's statistics office showed on Friday, though economists said recession still loomed on the horizon.

Compared with June 2007, new orders fell 7.4 percent, Eurostat said, the biggest year-on-year drop since a 10 percent fall in December 2001, when the economy last flirted with recession. Economists polled by Reuters had expected a 1.1 percent monthly decline and a 6.3 percent annual fall.

New orders in the 15 countries sharing the euro dropped 0.3 percent month-on-month, with economists blaming a global economic slowdown and, until recently, a strong euro that made exports more expensive compared with goods from the United States or other currency areas.

In July Eurostat had reported that new orders in May fell 3.5 percent month-on-month, but on Friday it revised this sharply downwards to a 5.4 percent fall. The year-on-year drop in May was left unchanged at 4.4 percent.

Economists said more trouble was in store for the euro zone economy which contracted in the second quarter. A pullback in the third quarter as well would mean the euro zone was technically in recession.

‘I should not focus on June but on May and June together. It shows that euro zone industry is in deep trouble by now,’ said Holger Schmieding, an economist with Bank of America.

‘These are very volatile numbers but having said that, we have now seen falls for four out of five of the last five months. There is a clear downtrend there,’ Schmieding said.

New orders are an indication of future industrial production and therefore overall economic activity, which in turn may impact monetary policy at the European Central Bank.

Transport equipment orders were worst hit, off by nearly 30 percent from June 2007, but chemicals and metals rose.

Sunil Kapadia at UBS bank said that combined with unimpressive Purchasing Managers' Index (PMI) data for the region on Thursday, the outlook was quite gloomy.

‘Taking all the data together, we could have another quarter of negative growth in Q3. Technical recession now looks more likely,’ Kapadia said.

Bank of America said the strong euro and global economic downturn was hurting significantly.

‘There is probably some more bad news to come as the strong euro will only be reflected in orders over time so the impact of the very strong euro until recently will affect the data for at least another half year,’ Schmieding said.

The euro zone's biggest economy and the world's top exporter, Germany, suffered a 3.5 percent month-on-month fall in new orders in June, and off 6.0 percent from June 2007.

‘One of the key engines of growth for the manufacturing sector in the euro zone --and in particular Germany -- has been demand for capital goods,’ said BNP Paribas economist Ken Wattret.

Excluding the volatile orders for ships, trains and planes, euro zone orders in June rose 0.6 percent percent month-on-month and fell 1.5 percent year-on-year.

For the 27-nation EU, new orders fell 0.1 percent from May and were down 6.6 percent from June 2007.