UPDATE 1-German engineering body ups 2012 growth forecast to 2 pct

Thu Sep 6, 2012 5:37am EDT

* Engineering trade body hikes 2012 output forecast on strong H1

* VDMA says decline in orders to impact production more in H2

* Says forecast for 2 pct 2013 growth hinges on euro crisis

By Sarah Marsh

BERLIN, Sept 6 (Reuters) - Germany's engineering trade body raised its forecast for sector output in 2012 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 , has helped Europe's largest 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 engineering trade body, which had forecast stagnation over the whole of 2012 in February.

The VDMA represents over 3,000 mainly small and medium size member companies but also large companies such as MAN SE and ThyssenKrupp.

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.

Overall growth in Germany's economy slowed in the second quarter of this year to 0.3 percent from 0.5 percent in the first and a string of increasingly gloomy data has raised the possibility of recession in the second half of the year.

The VDMA said an unrelenting decline in orders in the first half of the year would weigh on production in the second half. Orders in the broader manufacturing sector fell 1.7 percent in June, although data due later on Thursday is expected to show them inching up 0.2 percent in July.

Signs of weakness in the engineering sector are increasing. German industrial group Robert Bosch GmbH said last month it was in talks with workers at its engineering unit, Bosch-Rexroth, to cut their work hours in response to weakening demand from industrial customers.

The VDMA said it expected production to shrink in the first quarter of 2013 before powering ahead once more, saying it expected further full-year growth next year of two percent, on condition of a de-escalation in the euro zone crisis.

"We are aware that this forecast would not withstand an exacerbation of the problems in the euro zone," said VDMA Managing Director Hannes Hesse.

All eyes in the crisis are on the European Central Bank, expected on Thursday to detail plans for a new bond-buying progamme to help bring down soaring borrowing costs for Spain and Italy.

ECB President Mario Draghi has promised to "do whatever it takes" to preserve the euro.

A further factor likely to boost engineering output next year would be a pick-up in China's economy, a major export market for the sector, the VDMA said.

The world's No. 2 economy has slowed for six straight quarters and is at risk of missing Beijing's annual growth target of 7.5 percent.

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