German factory orders unexpectedly rise amid deteriorating prospects

German manufacturing orders rose unexpectedly in May, even as global momentum has been weighed down by rampant inflation and uncertainty caused by Russia's war in Ukraine. 

Demand increased by 0.1% compared with the previous month, compared with the economist's estimate of -0.5%. The rise was driven by large orders and, excluding them, orders fell 0.9%, according to a statement from the German statistical office on Wednesday. 

"Excess demand is likely to be linked to the continuing acute shortage of intermediate products," the statistics office said. "Businesses continue to face difficulties in fulfilling their orders as supply chains are interrupted due to the war in Ukraine and distortions persist caused by the Covid-19 crisis."

The outlook for Europe's largest economy has dimmed as Russia cut gas supplies, raising the risk of shortages in the coming winter. German Economy Minister Robert Habeck has stepped up warnings of impending unrest as the government paves the way for energy companies recovering from rising prices. 

Business surveys conducted by S&P Global showed a deepening decline in demand for German goods in June, although manufacturers were able to rely on the backlog in orders, while production was reduced due to the growl of supply. 

Rising spending on imports such as energy and food has helped trigger Germany's first monthly trade deficit since 1991, according to data released this week. Even adjusted for price changes, foreign trade is expected to have a negative impact on growth due to global uncertainty.  

Overall activity was supported by the easing of pandemic restrictions and growing demand for services from consumers filled with savings. However, this momentum has also weakened as energy prices and a growing range of daily staple foods continue to rise.