German factory orders unexpectedly fell in August in a sign that Europe’s largest economy is vulnerable to weaker growth in China and other emerging markets.

Orders, adjusted for seasonal swings and inflation, dropped 1.8 per cent after decreasing a revised 2.2 per cent in July, data from the economy ministry in Berlin showed on Tuesday.

The typically volatile number compares with a median estimate of a 0.5 per cent increase in a Bloomberg survey. Orders rose 1.9 per cent from a year earlier.

A China-led slowdown in emerging markets that threatens Germany’s export-oriented economy is exacerbated by an emissions scandal at Volkswagen that could affect as many as 11 million cars globally.

Still, business confidence unexpectedly increased in September as the economy benefited from strengthening domestic demand on the back of record employment, rising wages and low inflation.

Excluding big-ticket items, orders dropped 2.1 per cent in August, the economy ministry said in a statement. Domestic factory orders declined 2.6 per cent as demand for investment goods slumped. The drop in orders was exaggerated by school holidays, it said.

A bright spot was the rest of the euro area, where demand for capital goods jumped.

Waning Chinese industrial demand has prompted Henkel to announce the removal of 1,200 jobs at its adhesives unit as it adapts capacity.

While the brunt of the layoffs will be borne in Asia, 250 jobs will be cut in Europe and 100 in Germany.

August factory orders don’t yet reflect the impact of VW’s cheating on US emissions tests revealed last month.

Chairman- designate Hans Dieter Poetsch warned that the scandal could pose “an existence-threatening crisis” for Europe’s largest carmaker.

Bloomberg