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Germany came out with more incredibly bullish data on its economy this morning, with factory orders surging 2.4% month-over-month and 20.1% year-over-year.From Societe Generale’s Klaus Baader:
The latest gain in domestic orders was very much led by the capital goods producing sector (+4.6% mum), indicative of strong business investment. But new orders for consumer goods producing firms were also up (2.1% mum), tentatively pointing to improving private consumption — notwithstanding the shock to purchasing power from soaring energy prices.
This new boom in factory suggests that export markets for Germany should return to strength after a couple months of slower growth. So it would seem a rate hike, which may contain rising costs throughout the region in the best case scenario, wouldn’t be bad news.
But the rate hike is going to have a distinct impact on businesses throughout the eurozone, which remains Germany’s number one export market, possibly crimping demand for German exports. Germany can hope the demand will rise in Japan, as a result of the tsunami, but whether that’s enough to fill the gap is unknown. Further, China’s still struggling to contain inflation and may have to engage in more tightening that crimps its demand too.
This factory orders number is impressive, but it may be contained if the ECB does embark on a tightening cycle.