By Michael Nienaber
BERLIN (Reuters) - German industrial orders dropped for the third month running in March due to weak foreign demand, data showed on Monday, in a sign that factories in Europe's largest economy are facing headwinds from rising protectionism and a stronger euro.
Contracts for German goods fell 0.9 percent after a revised drop of 0.2 percent the previous month, data from the Federal Statistics Office showed. Analysts polled by Reuters had on average predicted a 0.5 percent rise in orders.
The last time that industrial orders, a volatile indicator on a monthly comparison, posted three consecutive drops was in mid-2015.
"A decline of 0.9 percent is a setback. That really hurts," VP Bank Group analyst Thomas Gitzel said.
"The economy is slowing down, that's the sure take-away from today's industrial orders data," Gitzel said, adding that some growth forecasts would soon have to be revised down.
The government last month cut its 2018 growth forecast to 2.3 percent from 2.4 percent and expressed concern about international trade tensions.
"The debate about tariffs has probably created great uncertainty in Europe's export-driven industry," Gitzel added.
As Europe's biggest exporter to the United States, Germany is desperate to avoid an EU trade war with the United States.
In the run-up to a June 1 deadline for U.S. President Donald Trump to decide on whether to impose steel and aluminium tariffs on the EU, Germany is urging its European partners to be flexible and pursue a broad deal that benefits both sides.
In a further sign that the looming tariffs are a concern, investor morale in the euro zone deteriorated for the fourth month in a row in May to hit its lowest level since February 2017, a survey by the Sentix research group showed.
Sentix Managing Director Manfred Huebner pointed to fears of a protectionist spiral and the stronger euro which makes goods more expensive for clients outside the single currency bloc.
NO MORE XXL
The drop in industrial orders was led by foreign orders which fell by 2.6 percent, while domestic orders rose 1.5 percent, the data showed.
A sector breakdown of the figures showed that demand for capital goods such as machinery and cars fell the most, while orders for consumer goods rose against the trend.
Even excluding bulk orders, manufacturing orders edged down slightly on the month, the statistics office said.
The economy ministry said that the industrial sector had lost some momentum in the first quarter after an unusually strong performance in the previous six months.
In the first quarter of 2018, order intake was down 2.1 percent on the previous quarter, it said.
"Orders from countries outside the euro area decreased significantly," the ministry added.
Despite the overall decline in the first three months of the year, the ministry said that companies still had a huge backlog of orders to work through.
The unexpectedly weak figures followed economic data that pointed to a cooling in the euro zone economy, possibly making it more difficult for the European Central Bank to begin reining in its lavish monetary stimulus later this year.
"All in all, the data is another confirmation that the growth peak has been passed," Bankhaus Lampe economist Alexander Krueger said.
The upswing of the German economy will continue, albeit less dynamically, Krueger said, predicting quarterly growth rates of "standard size rather than XXL".
Preliminary gross domestic product data for the first quarter are due out next week from the Federal Statistics Office. Analysts predict the economy grew 0.5 percent on the quarter after 0.6 percent in the last three months of 2017.
The DIW economic institute has said it expected the economy to bounce back in the second quarter after taking a breather at the beginning of the year, blaming the weak start to the year on a flu epidemic, strikes and an above-average number of holidays.
(Reporting by Michael Nienaber; Additional reporting by Rene Wagner; Editing by Hugh Lawson)
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