Weak domestic demand weighs on German industrial orders

By Joseph Nasr and Rene Wagner

BERLIN (Reuters) - German industrial orders rose less than expected in February due to weak domestic demand, data showed on Thursday, but the economy ministry said demand should pick up later this year as the world economy remains on a growth path.

Contracts for "Made in Germany" goods rose by 0.3 percent after falling by an upwardly revised 3.5 percent in January, data from the Federal Statistics Office showed.

The reading undershot a Reuters poll of analysts who had predicted a 1.5 percent increase.

"Despite the subdued demand so far this year orders should remain on an upward course," the economy ministry said in a statement. "The global economy remains in upswing which should keep demand for German industrial goods on a high level."

 

But the DIHK Chambers of Commerce and Industry struck a cautionary tone, saying that an escalation of a dispute between China and the United States over import duties could harm the global economy and dampen demand for German goods and services.

"The future development of orders largely depends on how the trade dispute develops," said Sophia Krietenbrink of the DIHK. "The U.S. is the most important market for German companies and China is the third most important market. Should growth in both countries slow down this could harm German companies."

A breakdown of the data showed that domestic demand fell by 1.4 percent. Foreign orders rose by the same amount and a 4.5 percent hike in demand from the euro zone offset a 0.6 percent fall in orders from outside the single currency bloc.

'ZENITH REACHED'

Private consumption has been a growth driver in recent years as consumers benefit from rising wages, record-high employment and strong job security but foreign trade propelled Germany's fourth-quarter expansion of 0.6 percent.

The manufacturing sector is brimming and remains a solid pillar in an economy seen as an export champion.

The statistics office said last month that German manufacturers are sitting on orders that will take them nearly six months to complete, cushioning them against future shocks resulting from a worsening trade dispute between the world's two largest economies.

The data showed that the manufacturers' so-called order range was 5-and-a-half months in January, meaning they could carry on producing for nearly half a year even if they received no new orders.

In a further sign of the health of the sector, engineering orders jumped 13 percent in February from a year ago, the VDMA industry group said on Thursday, saying however that a worsening of the trade dispute could spoil the party.

"Demand for high quality machines and plants by our clients all over the world remains high," said VDMA chief economist Ralph Wiechers. "We can only hope that the trade dispute between the U.S. and China doesn't cause lasting damage to this investment drive."

Alexander Krueger of Bankhaus Lampe said that weaker orders were not necessarily bad news given that manufacturers have hit full capacity and cannot meet higher demands.

"Capacities are fully stretched and time is needed to process orders," he said in a note. "The growth zenith has been reached."

(Writing by Joseph Nasr; Editing by Caroline Copley)