Eurozone orders much stronger than expected

Eurozone industrial new orders were much stronger than expected in April, likely reinforcing the ECB's view the economy was sound and that it could go ahead with a rate rise to anchor price expectations.
The European Union's statistics office Eurostat said new orders in the 15 countries sharing the euro jumped 2.5 percent month-on-month for an 11.7 percent year-on-year rise.
Economists polled by Reuters had expected a 0.6 monthly decline and a 1.5 percent annual gain. Eurostat revised down its data for March to a 1.2 percent monthly fall and a 3.7 percent annual decline.
"The data is likely to reinforce the ECB's belief that the eurozone's economy is fundamentally sound and that it can press ahead with raising its key interest rate from 4 percent to 4.25 percent at its 3 July meeting to try to ensure that current elevated inflationary levels and pressures are not sustained over the medium term," said Howard Archer, economist at Global Insight.
Excluding the volatile orders for ships, trains and planes, orders in April rose 2.2 percent month-on-month and 11.8 percent year-on-year. New orders are an indication of future industrial production and therefore overall economic activity, which in turn may impact the monetary policy of the European Central Bank.
The ECB, which wants annual inflation to be just below 2 percent, signalled it may raise interest rates by a small amount on July 3 from 4 percent to anchor inflation expectations after consumer price gains hit a record 3.7 percent in May.
Archer said however, the data should not be over-interpreted, because it was notoriously volatile. "Furthermore, the eurozone manufacturing purchasing managers' survey for June indicated that activity contracted for the first time since mid-2005, with new orders at a 60-month low, backlogs of work contracting and output declining," he said.
"Robust industrial orders growth in April therefore does not significantly undermine our belief that the eurozone manufacturing sector is struggling in the face of a very strong euro, muted consumer spending, softer growth in key export markets, elevated oil and commodity prices and tighter lending conditions," he said.