Eurozone orders point to upswing, rate rise

Eurozone new industrial orders grew more than expected in May, data showed on Tuesday, confirming an economic upswing despite the strength of the euro and boosting expectations of an interest rate rise.
European Union statistics office Eurostat said orders in the 13 countries using the euro increased by 1.7 percent from the previous month for a 9.1 percent year-on-year jump.
Economists polled by Reuters had expected gains of 1.1 percent on the month and 7.8 percent on the year. Excluding volatile demand for planes, ships and trains, orders rose 1.3 percent on a monthly basis and 5.5 percent year-on-year. "The main trend in the industry remains quite robust," said Stephane Deo, economist at UBS.
New orders give an indication of future industrial output and therefore overall economic activity, which in turn may impact interest rate policies of the European Central Bank.
Eurostat revised down its April industrial orders data to a drop of 0.6 percent month-on-month from the previous reading of a 0.4 percent decline, and to an annual gain of 11.8 percent versus the 12.2 percent increase initially reported.
The figures sharpened expectations that the ECB would increase its main interest rate by 0.25 point in September from 4.00 percent to keep the mid-term inflation outlook in check as the economy continues to expand.
"The ECB remains odds-on to lift interest rates by a further 25 basis points to 4.25 percent in September, despite the euro's strength," said Howard Archer, chief European economist at Global Insight.
Separately, data showed the flash eurozone services purchasing managers' index (PMI) slipped marginally in July to 58.1 from a final 58.3 in June, well above the 50.0 mark that divides growth and contraction, and a bit higher than expected.
Eurostat said that in month-on-month terms, orders rose most for the eurozone's often-exported machinery and equipment - 4.8 percent - despite the continued strength of the euro. The figure increased 12.8 percent year-on-year. "The ongoing prospect of higher eurozone interest rates is likely to continue to support the euro," Archer said.
Eurostat also said that compared with the same period of last year, orders jumped 9.2 percent in the eurozone's biggest economy, Germany, 14.6 percent in the second-biggest, France, and 9.6 percent in Spain. The figures turned out very strong in the European Union's new member states in central and eastern Europe, with Poland recording a 60.3 percent annual gain. In the whole, 27-nation EU, industrial orders rose 3.2 percent in May from April and by 10.2 percent in yearly terms.