German economy may be on the mend

GERMAN factory orders rose at the fastest pace in five months in June, led by demand from abroad, adding to evidence Europe's largest economy may start to grow again in the second half.

However, German unemployment rose for the first time in three months in July shows the economy is still struggling to recover from a three-year slump. The number of people out of work increased a seasonally adjusted 7,000 from June to 4.41 million, the Federal Labour Office said in Nuremberg. Economists had expected a decline. The unemployment rate was unchanged at 10.6%.

"I'm not expecting a strong economic rebound this year," said Achim Zuleeg, who helps oversee $1.7 billion in bonds at Merck, Finck Invest in Munich. "The labour market won't improve quickly because companies will wait before hiring again." Factory orders rose 2.3% after declining 2.6% in May, the Economics Ministry in Berlin reported. Economists had expected an increase of 0.8%. The jobless rate held at 10.6% last month, a separate report today showed, suggesting companies will wait for stronger growth before hiring again.

"We will see a recovery in the second half," said Roland Schmitt, who manages the equivalent of $1.7 billion in stocks and bonds at Deutscher Investment Trust in Frankfurt.

With borrowing costs at a 127-year low, the prospect of €21 billion ($24 billion) in tax cuts next year and an accelerating US economy have increased the chances of a recovery in Germany later this year.