Euro zone pain hits German industry orders in June

BERLIN Tue Aug 7, 2012 2:43pm BST

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BERLIN (Reuters) - German industrial orders fell more than expected in June as domestic and euro zone demand faltered, indicating the single currency bloc's debt crisis is taking its toll on Europe's largest economy.

Data from the Economy Ministry showed seasonally and price-adjusted orders dropped 1.7 percent on the month, coming in below the mid-range forecast in a Reuters poll of 38 economists for a 1 percent fall on the month.

Contracts from elsewhere in the euro zone fell by 4.9 percent on the month while domestically they dropped by 2.1 percent. The only bright spot was orders from non-euro zone countries, which were up 0.6 percent month-on-month.

"The lack of dynamism in new orders in the past few months reflects the weak economic environment in Europe," said Bernd Hartmann, head of investment research at VP Bank.

"As long as there is uncertainty about how the euro zone debt crisis will develop, even Germany's very competitive economy will suffer due to weaker demand," he added.

Germany's industrial output remains relatively robust compared to production in other euro zone countries like Italy, where it dived 1.4 percent on the month in June, pointing to a fourth consecutive quarterly drop in gross domestic product.

But Tuesday's figures add to increasing signs of gloom in Germany, where the manufacturing sector shrank at its fastest pace in more than three years in July while new orders in the service sector declined to the weakest level in just over three years.

Sentiment surveys have also slipped, with the closely-watched Ifo business climate index hitting its lowest in more than two years in July. Moreover, retail sales have fallen and the number of Germans out of work has increased.

MANUFACTURING SECTOR TAKING HIT

The Economy Ministry said the number of big orders was average for June and that second-quarter order levels were slightly above first-quarter levels, adding that the overall order situation was therefore stable.

"Domestic orders were slightly subdued, with the momentum coming from abroad," the ministry said in a statement.

German manufacturing companies have taken a hit recently, with Lanxess (LXSG.DE), the world's largest maker of synthetic rubber, on Tuesday predicting flat earnings in the second half on weakness in Europe and slower growth in Asia.

Last month ThyssenKrupp (TKAG.DE), Germany's biggest steel maker said it would temporarily curb working hours at its five steel-making facilities in Germany in response to a slowdown in demand.

"Things have been sluggish here for several months and that worsens the outlook for industry. The early signs point to a slight drop in production in June as well," said Commerzbank's Ulrike Rondorf.

"We do not expect industrial production in the second-quarter to have contributed to German economic growth in the second quarter," she added.

The data for May was revised upwards to a gain of 0.7 percent from a previously reported rise of 0.6 percent.

Germany is due to release June production figures on Wednesday at 11:00 a.m. British time, and the consensus forecast in a Reuters poll of 36 economists is for a 0.8 percent drop on the month.

(Editing by Madeline Chambers and Stephen Nisbet)

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