European retail sales fell for a second month in July as higher food and fuel costs eroded consumer confidence and spending power, the Bloomberg purchasing managers' index showed.
While the measure of sales activity in the euro region rose to 46 from 44 in June, it remained below the 50 mark that indicates growth. The index, based on a survey of around 1,200 executives compiled for Bloomberg LP by Markit Economics, also showed that retailers cut jobs for a fourth month as they missed sales targets.
Record oil and food prices pushed Europe's inflation rate to 4 percent last month, the highest in 16 years. That's curbing consumer spending and exacerbating the economic slowdown as the U.S. housing slump and a stronger euro weigh on exports. Manufacturing and service industries also contracted for a second month in July.
“We don't reckon inflation is going to get below 3 percent before the end of the first quarter next year, so the squeeze on incomes will be maintained,'' said Gareth Claase, an economist at Royal Bank of Scotland Group Plc in London. “As long as that's the case, consumer spending is going to remain under pressure.''
Sales fell in Germany and Italy in July and rose “modestly'' in France, Markit said. From a year earlier, overall euro-area sales declined, led by a slump in Italy.
Separate reports this week showed that consumer confidence in Germany, Europe's biggest economy, dropped to the lowest in more than five years while sentiment in France fell to a record low.
Oil Prices
Crude oil has risen 61 percent in the last 12 months, lifting the cost of gasoline and home heating oil. Consumers are also paying more for food after prices for corn and wheat soared.
Carrefour SA, Europe's biggest retailer, is facing a “deep and durable'' global economic crisis, Chairman Amaury de Seze said on July 28. The company's operating profit climbed 5 percent in the first half, less than the 7 percent growth it forecast quick payday loan.
Some retailers appear to be coping with the downturn. Casino Guichard-Perrachon SA, the biggest supermarket owner in Paris, this month said second-quarter sales rose 15 percent. Chief Financial Officer Michel Favre said the company is seeing “a switch of consumer traffic from hypermarkets to discount stores,'' which may buffer it from some of the economic downturn.
Rising prices are squeezing profit margins as companies offer discounts to lure shoppers, Markit said. Euro-region sales were below expectations in July, and German and French retailers expect to miss their targets again in August.
Job Cuts
Praktiker AG, Germany's second-largest home-improvement retailer, cut its full-year sales growth forecast on July 23.
With costs rising, retailers continued to cut jobs in July, Markit said, with a gauge of employment growth holding below 50 for a fourth consecutive month. Wholesale price inflation accelerated, with a gauge of prices paid by retailers rising to 67.3, the fourth highest since the index began in January 2004.
Metro AG, Germany's largest retailer, plans to close as many as 20 Adler fashion stores in Germany and Austria because they are losing money, it said this week.
The European Central Bank this month raised its key interest rate by a quarter point to 4.25 percent to curb inflation even as economic growth slows. The bank in June forecast the pace of euro- area expansion will slow to about 1.5 percent in 2009 from 1.8 percent this year. The economy grew 2.7 percent in 2007.
For the Bloomberg retail indicator, Markit Economics recruited a panel of companies in Germany, France and Italy, which together make up around 80 percent of total euro-area retail sales by value. The panel includes large chain retailers as well as smaller stores.
Senate Democrats failed Friday to advance a measure to rein in oil market speculators, one of a series of efforts to tell voters they are serious about addressing $4-a-gallon gasoline, and rejected Republican calls to expand offshore oil production.
Democrats needed 60 votes to clear a parliamentary hurdle and bring their oil speculation bill to a final vote. They got only 50, as 43 Republicans held out for a separate vote on an amendment to allow offshore drilling on the Atlantic and Pacific coasts. Democrats have refused to give them the opportunity, in both the Senate and the House.
"The Republican senators have chosen to take a dodge," said Senate Majority Leader Harry Reid. "If you don’t like our speculation bill, what do you want? Silence. They said they want this energy debate to go on forever."
The Senate Democrats’ bill would require the Commodity Futures Trading Commission to set limits on trading in oil markets by investors and speculators. It also would close a loophole that allows speculators trading on the London oil market to escape scrutiny by U.S payday loans online. regulators.
Democrats say the rapid increases in oil prices have coincided with big rises in trading on oil future markets.
Republicans say high gasoline prices are being caused by the basic economics of supply not meeting demand.
"We are not leaving, we are not giving up," said John Cornyn, R-Texas. "We can tear down these walls that prohibit domestic energy production here in America."
The Senate scheduled a procedural vote Saturday on a measure to double subsidies to help poor people pay what are expected to be record heating bills next winter. But as Congress headed into the final week before the August recess, chances of breaking the energy stalemate between Republicans and Democrats looked bleak.
On Thursday, House Republicans scuttled a bill to release 70 million barrels of oil from a national stockpile, which Democrats said would lower gasoline prices.
Veteran Microsoft Corp. executive Kevin Johnson, who headed the software giant’s online business and played a key role in the bid to buy Yahoo Inc., is leaving the company, Microsoft announced Wednesday.
Johnson is president of Microsoft’s platforms and services division, which includes both the online services business and Windows software for personal computers. He will depart to run network services provider Juniper Networks Inc. (JNPR), according to an online report Wednesday by the Wall Street Journal, which first reported Johnson’s departure.
Microsoft also said that the division that Johnson headed will be split into two groups: Windows/Windows Live and Online Services. Both groups will report directly to Chief Executive Steve Ballmer fast cash advance.
"Kevin has built a supremely talented organization," Ballmer said in a statement. "This new structure will give us more agility and focus in two very competitive arenas."
Mr. Johnson was part of the small team of Microsoft (MSFT, Fortune 500) executives that led the effort in January to bid for Yahoo (YHOO, Fortune 500). The deal, which ultimately fell through, was valued at nearly $50 billion.
"Microsoft is a special place and presents opportunity to so many," Johnson said, citing his 16 years at the company.
Laser equipment company Electro Scientific Industries Inc. reported lower sales for its first quarter.
The company would have made a profit, though smaller than in the same quarter last year, had it not recorded an impairment charge related to auction-rate securities it can't sell.
ESI (NASDAQ: ESIO), based in Portland, reported first-quarter revenue of $64 million, down nearly 11 percent from last year's revenue of $71.7 million in the same quarter. ESI had revenue of $70.6 million in its fourth quarter, which ended in March.
ESI lost $2.8 million, or 10 cents per share, in the first quarter. That compares with a profit of $7.9 million, or 27 cents per share, in the same quarter last year, and a profit of nearly $3 million, or 11 cents per share, in the March quarter.
A $5.1 million impairment charge for auction rate securities turned what would have been a profitable quarter for ESI to one finishing at a loss. Like many other companies, ESI bought auction-rate securities as a higher-interest alternative to cash, and found these securities couldn't be sold after the markets for them began to dry up last autumn.
ESI generated $1.6 million in cash from operations during the first quarter. The company spent $3.3 million buying back 214,000 of its shares to offset dilution, paying an average price of $15.63 per share.
ESI, which sells much of its equipment into the semiconductor industry, is one of many companies to report lower sales recently.
Industry association SEMI said that worldwide sales for the semiconductor equipment industry are expected to decline 20 percent this year, to $34.1 billion payday loans in 1 hour.
But ESI countered the trend on orders. Where North American semiconductor equipment manufacturers reported a 27 percent drop in orders during the first half of calendar 2008, ESI reported that orders rose 16 percent during the June quarter, to $59.6 million.
This increase was largely driven by products that are sold into industries other than chip manufacturing, such as forensics, petroleum exploration, mining and other areas of manufacturing. ESI said that its orders from semiconductor companies declined due to weakness in the computer-memory market.
ESI's stock fell in after-hours trading, possibly because its earnings were lower than the company had previously predicted, though revenue came in at the high end of prior guidance. ESI also said revenue will be lower in the second quarter, at $50 million to $60 million.
Shares of ESI were trading at $15.12 late on Thursday, down from Wednesday's close of $16.11. ESI's stock has traded between $13.61 and $25.64 over the past year.
Ford Motor Co. plans to revamp some U.S. plants and bring six small vehicles to the U.S. market from overseas to meet customers’ growing demand for more fuel-efficient options, a person briefed on the company’s plans said Tuesday.
Ford has no immediate plans to close U.S. plants despite overcapacity in a slumping market, the person said. Instead, the automaker will retool plants to increase production of smaller cars and engines. The person requested anonymity because Ford isn’t confirming details until Thursday, when it releases second-quarter earnings.
The moves will further accelerate Ford’s (F, Fortune 500) efforts to ease its dependence on trucks, sport utility vehicles and vans, which accounted for 45 percent of its sales in the first half of this year. Ford’s U.S. sales dropped 14 percent in the first six months of 2008 as consumers shocked by rising gas prices sought smaller vehicles.
The steep sales decline is expected to drag down Ford’s second-quarter results after a surprise $100 million profit in the first quarter. Ford had warned that the results were an anomaly, and in May it abandoned its long-stated goal of returning to profitability by 2009. Analysts surveyed by Thomson Financial predict a second-quarter loss of 27 cents per share.
The moves to be announced Thursday are Ford’s latest efforts to deal with plunging truck and SUV sales, which have also forced production cuts at General Motors Corp., Chrysler LLC, Toyota Motor Corp. and Honda Motor Co. In May, Ford announced it would slash truck and SUV production and cut several thousand salaried jobs on top of the 8,000 U.S. hourly jobs it is trying to cut this year.
On Monday, Ford said it plans to begin offering buyouts to workers at facilities in Michigan and Ohio, building on targeted buyouts offered in June at other plants in Kentucky and the Midwest.
Ford announced last month that it was cutting truck and SUV production for the rest of the year and increasing production of the Focus small car and Ford Escape and Mercury Mariner small SUVs. It also delayed the launch of its new F-150 pickup until fall.
Also in June, Ford revealed that it will build the global Fiesta subcompact at its factory in Cuautitlan, Mexico, which has been making trucks, and that it will build the European Focus small car in North America. Both cars are set to go on sale in the U.S. in 2010.
The company now plans to bring even more vehicles over from Europe and produce them in North America, according to the person briefed on the plans. They could include the Kuga small crossover vehicle, the Transit Connect and C-Max small vans and the next-generation Mondeo midsize car, which likely would replace the current Ford Fusion and Mercury Milan.
Some factories, the person said, will be retooled to produce more fuel-efficient four- and six-cylinder engines and more efficient transmissions for the new vehicles.
Also, to meet high demand for the current Focus small car, Ford will retool part of the Michigan Truck plant in the Detroit suburb of Wayne to build Focus bodies payday loans. The bodies would then be shipped next door to the Wayne Assembly plant, where the Focus is made, the person said. Ford has been trying to crank out more Focuses at the Wayne Assembly plant, but analysts have said its body shop can’t move as quickly as the rest of the factory, and that has slowed production.
Production of the Ford Expedition and Lincoln Navigator SUVs, which are currently made at the Michigan Truck plant, would be moved to another location, likely the Kentucky Truck Plant in Louisville, which builds Ford F-250 and F-550 Super Duty pickup trucks.
Rocky Comito, president of the UAW local in Louisville that represents workers at the plant, said Tuesday he hadn’t been told of any changes, although Ford promised new products for the truck plant and the Louisville Assembly plant in its national UAW contract reached last year.
"We tell them we’ll build whatever they bring us," Comito said.
Greg Gardner, an analyst for the consulting firm Oliver Wyman, which publishes the annual Harbour Report on auto manufacturing, said converting an auto plant’s operations from trucks to cars is no easy feat and could easily cost tens of millions of dollars per factory. But the changeover is critical, he said, since Ford has lost small-car sales because it didn’t have enough inventory.
"You can’t use the same conveyor system for trucks as you can for cars," Gardner said. "There’s some equipment, like torque wrenches and things like that … those are common to any vehicle. But really heavy-duty capital equipment has to be different."
But it’s unclear if Wall Street will be satisfied with Ford’s latest plan. Brian Johnson, an analyst with Lehman Brothers, said Tuesday in a note to investors that Ford still has too much North American plant capacity and needs to close plants.
Ford shares rose 36 cents, or 6.6 percent, to $5.84 Tuesday.
Japan's consumer prices probably rose at the fastest pace in a decade, discouraging households from spending and slowing economic growth.
Core prices, which exclude fruit, fish and vegetables, climbed 1.9 percent in June from a year earlier after rising 1.5 percent in May, according to the median estimate of economists surveyed by Bloomberg ahead of figures to be released July 25.
The Bank of Japan cut its growth forecast last week, saying record commodity costs are causing companies and individuals to cut spending. Governor Masaaki Shirakawa and his colleagues probably won't raise interest rates even if inflation exceeds 2 percent, the higher end of their range for price stability.
“Bank of Japan policy makers seem to be anticipating core prices will reach or surpass the top of the range, but they won't be prompted to act just because of that,'' said Ryutaro Kono, chief economist at BNP Paribas in Tokyo. Any attempt to quell inflation by raising rates would erode growth, Kono said.
Core prices will probably climb 1.8 percent in the year ending March 2009, more than the 1.1 percent projected three months ago, the central bank said last week. The gauge of inflation will ease to 1.1 percent next fiscal year, it said.
Policy board members consider prices to be stable when they are between zero and 2 percent. The range isn't a binding target.
Record gasoline prices and rising food costs caused consumer sentiment to plunge to the lowest level in at least 26 years last month. Households reduced spending for a third month in May as prices of daily necessities climbed 2.4 percent, three times the pace of wage growth.
Slower Growth
The central bank last week cut its assessment of consumer spending in its monthly economic report and reduced the growth forecast for this fiscal year to 1.2 percent from 1.5 percent cash advance loan.
“The risk of an economic slowdown has increased since April, while the central bank realizes that price gains are mainly driven by rising oil and raw materials,'' said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The Bank of Japan will keep the policy status quo for a considerably long time.''
The bank will hold the benchmark interest rate at 0.5 percent for the rest of the year at least, according to 31 of 33 economists surveyed by Bloomberg News this month. Two analysts predict a rate increase.
Core inflation will probably accelerate further in July as utilities and processed food makers raise retail prices.
Tokyo Electric
Tokyo Electric Power Co. and nine other power companies increased charges on July 1, as did four gas providers including Tokyo Gas Co. Tokyo Electric also plans to adopt a new pricing system in September to better reflect higher fuel costs, a sign that electricity charges will climb further later this year.
Companies that are raising prices to absorb higher costs are also seeing sales drop.
All Nippon Airways Co., Japan's second-largest carrier, last week said surcharges it imposed to compensate for record jet fuel prices will cut annual sales by about 10 billion yen ($94 million).
Tokyo's core prices, a harbinger of the nationwide index, probably rose 1.6 percent this month from a year earlier, following a 1.3 percent gain in June, according to economists.
New Zealand central bank Governor Alan Bollard will probably keep interest rates at a record this week to fight inflation, ignoring a slump in consumer confidence and housing that may have pushed the economy into recession.
The Reserve Bank will keep the official cash rate at 8.25 percent, according to 11 of 15 economists surveyed by Bloomberg. Four say Bollard will cut the rate a quarter point when he announces his decision at 9 a.m. on July 24 in Wellington.
Bollard expects inflation will accelerate to an 18-year high this year and won't fall below the 3 percent limit of his target range until mid-2010. The Governor, who said on June 5 he is “likely'' to lower borrowing costs this year, doesn't want to cut too soon in case he fans wage demands, said economist Brendan O'Donovan.
“The softer growth picture since June doesn't diminish the risk of creating new problems by easing aggressively,'' said O'Donovan, chief economist at Westpac Banking Corp. in Wellington. “The Reserve Bank clearly set out a slow and steady approach in June. We don't think enough has changed for them to abandon their plan.''
Cutting rates too soon could also drive down the nation's currency and bolster the price of imports.
O'Donovan is among the 11 economists who expect a rate cut at the Sept. 11 review, by which time the central bank will have information on second-quarter wages, employment and retail spending to gauge inflation pressures.
Global Dilemma
Consumer prices rose 4 percent in the year ended June 30, the fastest annual pace in two years. Bollard last month forecast the inflation rate will accelerate to 4.7 percent, the highest since the fourth quarter of 1990. Westpac expects inflation will exceed 5 percent this year.
Traders are betting the slump in domestic demand will spur Bollard to cut rates this week. There is a 50 percent chance of a quarter-point cut from 27 percent at the start of the month, according to an index calculated by Credit Suisse, based on swaps trading.
Central bankers around the world are grappling with slowing economic growth while surging fuel and food prices fan inflation. Consumer prices in the U.S easy quick payday loans. surged 5 percent in the year through June, the biggest jump since 1991, and in Europe they climbed 4 percent, the fastest pace in more than 16 years.
Bollard said last month he couldn't rule out the possibility of a recession as rising prices, record-high interest rates, a drought and a slumping housing market stall the economy.
Housing Slump
Gross domestic product contracted 0.3 percent in the first quarter. Eight of 13 economists surveyed by Bloomberg News expect it also shrank in the three months ended June 30, putting New Zealand in its first recession since 1998.
Sales of New Zealand houses slumped for a fourth straight month in June, the Real Estate Institute said on July 11. Property prices fell 2.2 percent from a year earlier and the median time it took to sell a home increased to 53 days, the longest since January 2002.
Consumer confidence fell to a record low in the two weeks ended June 29 because of the prospect of recession, according to a survey conducted by Roy Morgan.
Slowing sales are eroding earnings at retailers such as Hallenstein Glasson Holdings Ltd., which said on July 10 that full-year profit will fall at least 28 percent as sales drop. The clothing retailer became the third New Zealand store owner to cut earnings forecasts in two weeks.
`Fierce Competition'
“The current environment is the most challenging experienced for a number of years,'' Chief Executive Officer Shayne Quanchi said. “There is fierce competition for consumers' wallets.''
Bollard, 57, has kept interest rates unchanged since July last year, waiting for evidence slower economic growth will curb inflation.
By contrast, central bankers from Frankfurt to Bangkok are raising rates after losing bets that a global slowdown would contain prices.
On July 16, Thailand's central bank raised its benchmark interest rate for the first time in two years to combat decade- high inflation. The European Central Bank increased rates a quarter point this month after inflation accelerated.
Washington is tying itself in knots trying to shore up confidence in the financial sector.
In just the past week, officials have moved to curtail short-selling, promised a crack down on market rumormongers and cooked up a rescue plan for beleaguered mortgage companies Fannie Mae and Freddie Mac - while taking pains to argue that the institutions are sound even as investors dump shares.
Trouble is, banks and brokerage stocks aren’t being done in by a cabal of bad guys on trading desks. Bankers who made increasingly reckless bets on the housing market engineered this train wreck. And the damage they wrought on their companies’ balance sheets is going to take time - and a lot more pain - to undo.
"This is the unwinding of our bubble economy," says Euro Pacific Capital strategist Peter Schiff, a longtime critic of U.S. fiscal policy and credit market excesses. "Anybody can make loans. But banks are finding the problem right now is getting the money back."
The Securities and Exchange Commission stunned Wall Street this week with an emergency order that would limit short sales of 19 financial companies, including Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) as well as brokerage firms Merrill Lynch (MER, Fortune 500) and Lehman Brothers (LEH, Fortune 500).
In a short sale, an investor borrows stock, hoping the price falls so he can profit by returning the shares at a lower price. Until now, shorts have needed only to show they have made an effort to locate shares to borrow. Now they’ll need contracts for them.
The new rules, which would take effect Monday and last as long as a month, come on top of SEC Chairman Christopher Cox’s announcement Sunday that the agency would "immediately" find the source of untrue rumors about stocks. The basic message: the SEC’s cops on the beat will make sure no one is manipulating stock prices.
For now, Cox’s announcements seem to be working wonders. Financial stocks did indeed regain their stability Wednesday, soaring as short-sellers bought shares to cover their positions and Wells Fargo (WFC, Fortune 500) posted a stronger-than-expected second quarter. Hard-hit stocks such as Fannie, Freddie and Lehman surged as much as 20%, and the S&P 500 financial index posted its biggest-ever gain.
But the relief is likely to be short-lived.
Bank and brokerage stocks were at multiyear lows before Wednesday’s rally because their books are bloated with mortgage loans whose value will plunge as U.S. home prices continue to fall, and because many firms have borrowed heavily to make these bad bets, thus magnifying their losses.
Sooner or later, investors will turn their focus away from scheming short-sellers and back to crummy balance sheets creditscore.
Oppenheimer analyst Meredith Whitney, a longtime skeptic of the financial sector, has predicted that share prices will continue to fall, as firms struggle to sell assets and bring down expenses.
She wrote Tuesday that the industry’s failure to anticipate the steep fall of home prices could lead to "a material and protracted writedown and capital pressure scenario for the banks well into 2009."
She doesn’t expect to see a rebound till banks "get real" about the value of the mortgage-related assets on their books.
The banks aren’t the only ones that have failed to get real. Indeed, Cox’s offensive against short-selling can be seen as just the latest federal effort to downplay the depth of the credit crunch that started last summer.
Back then, Fed chief Ben Bernanke and Treasury Secretary Henry Paulson said the crisis - then linked exclusively to the collapse of subprime mortgage securities - would be contained without damaging the economy.
Since then, credit problems have gotten progressively worse. This spring saw the collapse of Bear Stearns, the mortgage-heavy investment bank that was rescued in a Fed-brokered sale to JPMorgan Chase (JPM, Fortune 500), even as Cox said Bear had sufficient capital.
Then there was Paulson’s statement of government support for Fannie Mae and Freddie Mac over the weekend. Their shares had lost nearly half their value over the course of a week as investors fretted over their thin equity cushions and their hefty exposure to souring home mortgages.
The executive branch isn’t the only place Pollyannas reside, of course. "These institutions are fundamentally sound and strong," Sen. Christopher Dodd, chairman of the Senate banking committee, said at a Capitol Hill press conference last week, in reference to the steep selloff in Fannie and Freddie shares.
Those who believe Fannie and Freddie are fundamentally unsound have no shortage of ammunition, however. Both firms have more than $800 billion in mortgage loans and other assets on their balance sheets. But Fannie has just $38 billion of shareholder equity - a measure of net worth - and Freddie $16 billion.
With the two companies and other mortgage industry players suffering heavy losses as home prices fall, it’s easy to see why some investors might be tempted to bet against the companies, whatever their motives.
Microsoft is trimming the price of its Xbox 360 video game console to make way for a new model with a bigger hard drive.
Starting Sunday, Microsoft’s mid-range Xbox 360 console with a 20-gigabyte hard drive will cost $299 in the U.S., down from $350.
Blogs have carried rumors of the decision since June, when photos depicting the $299 price tag were posted to the Internet.
An updated Xbox 360 is set to arrive in stores in early August. The $350 replacement will sport a 60GB hard drive, significantly more space for storing the games, TV shows and movies Microsoft sells on its Xbox Live Marketplace Web site.
Microsoft (MSFT, Fortune 500) also is expected to give the Xbox a little extra appeal by streaming movies and TV episodes through a high-speed Internet service offering by Netflix (NFLX). The long-rumored deal could be announced as early as Monday at a video game conference in Los Angeles.
Microsoft did not adjust prices for its more basic Xbox 360 Arcade version, which has just 256 megabytes of storage and costs $280, or for the Xbox 360 Elite, a $450 model with a 120GB hard drive free credit report online.
The Redmond, Wash.-based company released its next-generation game console in 2005, a year ahead of competing machines from Nintendo and Sony (SNE).
As of the end of May, Microsoft had sold 10.3 million Xboxes in the U.S., according to data from market researchers NPD Group. By comparison, Nintendo had sold 10.2 million Wii consoles, and Sony had sold 4.5 million PlayStation 3 machines.
Nintendo has kept the Wii’s price at $250 since its U.S. launch in November 2006, while Microsoft and Sony have made several cuts to console prices in different regions. Currently, PS3 models cost $400 to $500 in the U.S.
Exports from Germany, Europe's largest economy, declined the most in almost four years in May, as a cooling global economy and a stronger euro curbed demand.
Sales abroad, adjusted for working days and seasonal changes, decreased 3.2 percent from April, the Federal Statistics Office in Wiesbaden said today. That's the biggest drop since June 2004. Economists expected a gain of 0.5 percent, the median of 11 forecasts in a Bloomberg News survey showed.
Exporters are grappling with the euro's 15 percent appreciation against the dollar and an 18 percent gain against sterling in the past year. That's eroding competitiveness just as a U.S.-led global slowdown and record oil prices cool the world economy. In China, export growth probably slowed in June.
“We can't expect much support from the export side,'' said Matthias Rubisch, an economist at Commerzbank AG in Frankfurt. “We will only see slight gains in the coming months. Over the past few weeks, the economic outlook has considerably worsened.''
From a year earlier, exports rose 2.5 percent, today's report showed. The trade surplus narrowed to 14.4 billion euros ($23 billion) from 18.8 billion euros in April. Economists forecast a surplus of 17.3 billion euros. The surplus in the current account, the measure of all exports including services, narrowed to 7.5 billion euros from 15.5 billion euros in April.
Production Drops
Manufacturing orders in Germany unexpectedly fell for the sixth month in succession and industrial production declined for a third, reports showed over the past week.
German consumer, business and investor confidence fell last month. Plant and machinery orders fell the most in three years in May, the VDMA machine makers association said last week cash advance.
“The stronger euro is starting to hurt,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. “Foreign orders have seriously dropped in recent months and with weak domestic demand not offsetting the shortfall, economic growth in the second quarter may contract.''
Growth is slowing globally after the U.S. subprime mortgage market collapsed, making banks reluctant to lend and driving up the cost of credit. The International Monetary Fund in April forecast world growth would slow to 3.7 percent this year from 4.9 percent in 2007.
Australia, Dubai
Oil prices above $135 a barrel are fanning inflation and eroding demand. About 50 countries now have inflation of more than 10 percent, a Morgan Stanley study showed last month.
Some companies are trying to offset falling European and U.S. orders by expanding in oil-exporting countries. Lanxess AG, Germany's biggest publicly traded specialty-chemicals maker, is sticking to its full-year profit targets on demand from Asia.
Hochtief AG, Germany's biggest construction company, won three orders valued at more than 340 million euros ($540 million) to maintain roads and build apartment towers in New Zealand, Australia and Dubai.
Shipments to countries outside the European Union rose 4.2 percent from a year earlier. Exports to EU member states increased 1.5 percent, while imports gained 5.7 percent.
Still, after the fastest economic expansion in 12 years in the first quarter, Europe's largest economy may shrink in the second quarter, Germany's Deputy Economy Minister Walther Otremba said June 24.
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