Hopes rise for upturn in Germany

HOPES that the German recession may be bottoming out after output plunged in the first quarter were raised yesterday by a sharp jump in industrial orders and an unexpectedly small rise in unemployment.

Despite the good news, the mark suffered across the board on the foreign exchanges as a surge in US employment raised fears that the Fed could increase interest rates. The dollar rose by 1.85 pfennigs to DM1.6190, while the pound gained nearly half a pfennig to end the day at DM2.4702.

Industrial orders in western Germany rose by 2.1 per cent in April from a five-year low in the previous month, according to the Economics Ministry in Bonn. Factory orders had fallen by 2.7 per cent in March and 2.8 per cent in February. Economists warned that the orders figures were volatile and prone to large revisions.

Richard Reid, of UBS in Frankfurt, said the figures suggested the fall in activity in the economy was slowing down. 'We are beginning to get a bit more confidence that things will stabilise in the second half of the year,' he said. Gross national product in the west fell by 2 per cent in the first quarter, giving the largest annual fall for at least 25 years.

April's rise in orders was broadly based, ranging from 0.4 per cent for consumer goods to 3.6 per cent for foreign orders. The figures are in tune with recent data showing a 0.5 per cent rise in factory production in April, the second successive monthly increase. Total output fell by 1.3 per cent last year, the worst annual decline for a decade.

Unemployment in western Germany rose by 24,000 in May, substantially less than the market had expected. Some 2.23 million people are now without work in the west, adjusting for normal seasonal influences. The seasonally unadjusted unemployment rate fell from 7.1 to 6.9 per cent of the workforce.

The situation is far worse in the east, however, with unadjusted unemployment twice as high at 14.4 per cent. The unadjusted jobless total dropped from 1.12 million to 1.10 million over the month. Ruth Lea, economist at Mitsubishi Bank, said the figure was probably above 20 per cent excluding special employment programmes and part-time work.