February 6, 2019 / 7:50 AM / 12 days ago

'Best times over' for German industry as weak foreign demand sinks orders

BERLIN (Reuters) - Weaker demand from abroad unexpectedly dragged down German industrial orders in December, data showed on Wednesday, in the latest sign that exporters in Europe’s largest economy are being hurt by a slowing world economy and rising trade barriers.

FILE PHOTO - A steel-worker is pictured at a furnace at the plant of German steel company Salzgitter AG in Salzgitter, Lower Saxony on March 17, 2015. REUTERS/Fabian Bimmer/File Photo

Contracts for ‘Made in Germany’ goods were down by 1.6 percent - compared with a 0.3 percent rise forecast by economists - after an upwardly revised drop of 0.2 percent in the previous month, the Federal Statistics Office said.

“The decline in orders in December indicates that the industry’s phase of weakness is continuing for the time being,” the Economy Ministry said.

The overall drop was driven by a 5.5 percent plunge in orders from clients outside the euro zone while domestic orders edged down by 0.6 percent.

In a further sign of weakness, industry association VDMA said on Wednesday that engineering orders in December fell by 8 percent in real terms from the previous year.

“It’s clear now that the best times for German industry are over,” Bankhaus Lampe economist Alexander Krueger said.

“In view of the slowing global economy and many political risks, it is doubtful where new and sustainable growth impulses should come from in the near future,” Krueger added.

Without the distorting effect of bulk orders, new business rose by 3.5 percent on the month, the data showed.

In the fourth quarter as a whole, industrial orders were up 0.3 percent on the quarter, the ministry said. It pointed to a rebound in orders in the automobile sector which had struggled to adjust to new emissions regulation in the third quarter.

SLOW AND SLUGGISH

Still, growth is expected to remain weak at the beginning of the year as sentiment indicators point to a subdued industrial activity in the coming months.

“Industrial orders took another nosedive, indicating that any rebound in industrial activity will be slow and sluggish,” said Carsten Brzeski from ING.

The Ifo indicator showed last week that German business morale fell for the fifth consecutive month in January, suggesting a downturn.

Other data released last week showed German retail sales fell by the fastest rate in 11 years in December on the month, sending a worrying signal about household spending which has become a key growth driver in Germany.

Record-high employment, rising real wages and low borrowing costs are supporting a domestically driven upswing in Germany, which is facing increasing headwinds from the slowing world economy, tariff disputes and Britain’s departure from the EU.

Global trade tensions and concern about Brexit have also prompted the government to slash its growth forecast for this year to 1 percent from 1.8 percent previously as a decade-long boom in Europe’s economic powerhouse is losing steam.

The slowing economy also means tax revenues will probably come in below previous estimates. The Finance Ministry said this week that the federal government is facing a budget shortfall of around 25 billion euros ($28.5 billion) by 2023.

This means the government’s options for supporting the economy with additional fiscal measures may be limited as Chancellor Angela Merkel’s governing coalition has agreed to reject both tax hikes and taking on new debt.

In a marked shift in industrial strategy, Economy Minister Peter Altmaier presented a policy paper on Tuesday that included options for the government to buy stakes in key domestic companies to prevent foreign takeovers, protect key industries and safeguard the country’s prosperity.

($1 = 0.8785 euros)

Reporting by Michael Nienaber; editing by Thomas Seythal and Andrew Heavens

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