Confirming signals that the eurozone economy is struggling, Germany’s factory orders fell in August as both domestic and foreign demand deteriorated from July.

Data released by the German statistics office showed last week that factory orders dropped by 1.8 per cent in August compared with July, confounding expectations by economic watchers for a 0.5 per cent rise. Orders had declined by a revised 2.2 per cent in July but rose 1.9 per cent from August of last year. This was the second consecutive monthly decrease in orders.

A China-led slowdown in emerging markets that threatens Germany’s export-oriented economy is being exacerbated by an emissions scandal at Volkswagen AG and the continuing conflict in Ukraine.

In the meantime, the International Monetary Fund (IMF) warned policymakers to protect their financial systems from possible instability as the US Federal Reserve prepares to raise interest rates, saying shocks or policy errors risk derailing the global economy and triggering equity market sell-offs.

Emerging market companies have an estimated $3 trillion in overextended loans that threaten to trigger a sharp credit crunch and capital outflows in economies that have already been hit hard by low commodity prices, the IMF said. The warning followed a separate report last week in which the IMF cut its outlook for global growth this year to 3.1 per cent from a July forecast of 3.3 per cent.

Finally, in the US, the minutes of the September Federal Open Market Committee (FOMC) meeting showed that officials remain uneasy with low inflation, which has been below a two per cent target for more than three years. Fed staff estimated inflation would not hit the two per cent goal even by the end of 2018.

Officials also indicated growing international risks, mainly from China, as reasons for putting off an interest rate rise in September, even as they continued to say they were on track to raise rates later this year.

This report was compiled by Bank of Valletta for general information purposes only.