September 6, 2012 / 12:32 PM / in 5 years

German industry orders rise, outlook still gloomy

BERLIN (Reuters) - Stronger domestic demand helped German industrial orders edge up in July and an engineering trade body raised its forecast for full-year output growth but warned the euro crisis would hurt more in the second half of 2012.

Data from the economy ministry on Thursday showed seasonally and price-adjusted orders climbed by 0.5 percent on the month as domestic bookings rose 1.0 percent, stirring hopes that demand at home will carry the economy through the euro zone’s problems and a slowdown in Asian demand.

But economists said the slightly stronger-than-expected rise was compensating for a revised drop in orders of 1.6 percent in June and the overarching trend was still downward.

“All in all it’s a counter movement after the weak previous month, but in the next couple of months we will are likely to see a downward trend in orders,” said Ulrike Kastens at Sal. Oppenheim. “The export-orientated nature of the economy is noticeable because the global economy is losing steam.”

Foreign orders edged up by a mere 0.1 percent in July, with euro zone orders dipping by 0.6 percent, although the economy ministry said they seemed to be stabilizing.

Germany’s economy had long resisted the euro zone crisis, but growth slowed to 0.3 percent in the second quarter as firms concerned about the region’s debt crisis cut back on investment and many economists now predict a third-quarter contraction.

“On average we expect a slight fall in gross domestic product in the second half of the year: we expect it to go down in the third quarter and stagnate in the fourth quarter,” Kastens said.

Companies in Germany’s traditionally export-oriented economy are suffering from weaker demand in the euro zone where many countries are implementing severe austerity measures and from a broader global slowdown.

A survey earlier this week showed Germany’s manufacturing sector contracted for a sixth consecutive month in August as companies received fewer new orders from abroad.

Big companies like steelmaker ThyssenKrupp (TKAG.DE) and industrial group Bosch ROBG.UL have said they will cut working hours at German plants due to weaker demand and the head of employers’ association Gesamtmetall said on Wednesday more companies may resort to this.

The Economy Ministry said order levels remained stable overall and added that the volume of big orders in July was the same as the average level for the first half of the year.

Germany is due to release July production figures on Friday at 6:00 a.m. EDT (1000 GMT), and the consensus forecast in a Reuters poll is for output to stagnate. But the country’s production remains relatively robust compared with euro zone peers like Spain, where it fell 6.3 percent on the year in June.

DOWNWARD PATH

Earlier on Thursday, Germany’s VDMA engineering trade body hiked its forecast for sector output this year to two percent but said declining orders were increasingly weighing on production and its estimate for two percent 2013 growth hinged on an improvement in the euro crisis.

    The engineering sector, which is Germany’s largest industrial employer and includes household names such as Siemens (SIEGn.DE), has helped the economy fare better than the rest of the 17-nation euro zone throughout its 3-year long debt and financial crisis.

    “We started better than expected at the start of the year. That raises our results for the full year,” said the VDMA, which had forecast stagnation over the whole of 2012 in February.

    The VDMA represents over 3,000 mainly small- and medium-size companies but also large companies such as MAN SE (MANG.DE) and ThyssenKrupp (TKAG.DE).

    It said production by its members expanded 4 percent overall in the first half of 2012 but had decelerated from 8.1 percent in the first quarter to 0.2 percent in the second.

    The VDMA said an unrelenting decline in orders in the first half of the year would weigh on production in the second half.

    Engineering output would also shrink in the first quarter of 2013, the trade body said, but would likely reach full-year growth of two percent, provided the euro zone crisis did not get worse.

    It said a pick-up in China’s economy, a major export market for the sector, would help. The world’s No. 2 economy has slowed for six straight quarters.

    Reporting by Sarah Marsh, editing by Annika Breidthardt/Ruth Pitchford

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