September 6, 2016 / 11:23 AM / 3 years ago

German industry orders suggest slowing economy ahead

BERLIN (Reuters) - German industrial orders eked out a smaller-than-expected rise in July and showed a decline in domestic demand, underlining growing concerns that Europe’s economic powerhouse is slowing down.

Contracts for goods “Made in Germany” were up by 0.2 percent in July, the Economy Ministry said on Tuesday. That was weaker than a Reuters consensus forecast for a rise of 0.5 percent.

Domestic demand fell by 3.0 percent while foreign orders rose by 2.5 percent, with demand from euro zone countries jumping by 5.9 percent.

“Domestic demand for goods is disappointing again,” DIHK economist Sophia Krietenbrink said, adding that the data pointed to weaker consumption in the coming months.

The surprisingly low order intake from home added depth to a picture of lacklustre investment among German companies while European peers seem more willing to open their pockets.

This was also reflected in a forecast by the Munich-based Ifo institute for Germany’s current account surplus to hit a new record of $310 billion (233 billion pounds) in 2016, overtaking that of China again to become the world’s largest.

Ifo economist Christian Grimme said exports exceeded imports by $159 billion in the first half of the year, mainly due to strong demand from other European countries.

The institute said the German surplus would be equivalent to around 8.9 percent of gross domestic product, meaning it would once again breach the European Commission’s recommended upper threshold of 6 percent.

This is likely to fuel the debate about Germany’s economic role. Brussels and Washington have urged Berlin repeatedly to lift domestic demand to help reduce global economic imbalances.

Speaking in parliament to present the federal budget, Finance Minister Wolfgang Schaeuble rejected such criticism, saying Berlin was massively increasing state spending while also implementing other measures to lift domestic demand.

“We are playing our part in strengthening global demand. No other country in Europe is spending more on investment than Germany,” Schaeuble said.

A worker controls a tapping of a blast furnace at Europe's largest steel factory of Germany's industrial conglomerate ThyssenKrupp AG in Duisburg, Germany December 6, 2012. REUTERS/Ina Fassbender/File Photo

“Just because some countries in Europe are taking on more debt, it doesn’t mean they are investing more.”

He did say, however, that tax cuts may be in the offing after next year’s federal election.

The German government introduced a national minimum wage in 2015 and decided to raise pension entitlements in 2016 by the strongest rate in more than two decades. In addition, Berlin increased state spending on roads, digital infrastructure and migrants.


The industrial orders data was the first for a full month since Britain’s vote to leave the EU.

“Economic and political uncertainty are dampening order activity around the globe,” VP Bank economist Thomas Gitzel said, adding that Britain’s 23 June vote was only one negative factor among several others.

“With U.S. presidential candidate Donald Trump, the next uncertainty is around the corner,” Gitzel said, pointing to Trump’s sharp rhetoric against free trade. The United States is Germany’s most important export market.

The Economy Ministry said that the development of incoming orders was lacklustre so far this year, suggesting industrial activity would be rather weak in autumn.

The ministry provided no single data on how orders from the UK developed in July. But a regional breakdown showed that demand from countries outside the euro zone rose by only 0.6 percent after an increase of 3.8 percent in June.

HSBC Trinkhaus economist Jana Meier said uncertainty about the future relationship between Britain and the remaining 27 EU members was likely to weaken investment in the medium term.

Economists are divided on how much Brexit will weaken German exports and consequently lower growth rates in the coming quarters. Britain is Germany’s third-most important export market.

Men work at the assembly line in the truck production plant of truck and bus-maker MAN AG in Munich, Germany July 30, 2015. REUTERS/Michaela Rehle

The DIW economic institute expects economic growth to ease to 0.3 percent in the third quarter from 0.4 percent in the three months to June, partly because of Brexit.

For 2016 as a whole, the government expects rising private consumption and higher state spending to drive an overall growth of 1.7 percent, on a par with last year.

For 2017, Berlin expects growth to slow to 1.5 percent as weaker exports are expected to hit manufacturers.

Additional reporting by Rene Wagner Editing by Jeremy Gaunt

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