UPDATE 2-German orders suffer sharpest fall in almost three years in June

Wed Aug 6, 2014 8:00am EDT

Related Topics

* Orders from euro zone slide by 10.4 pct

* Big-ticket contracts well below June average

* Ukraine crisis seen having limited impact on Q2 hard data (Adds economist and company comment, detail)

By Michelle Martin

BERLIN, Aug 6 (Reuters) - German industrial orders fell in June at their steepest rate since September 2011 as euro zone demand weakened and bulk orders were below average, with the Economy Ministry suggesting this was in part due to uncertainty over the Ukraine crisis.

Suggesting output in Europe's largest economy will have a weak start to the third quarter, contracts fell by 3.2 percent on the month as orders from the single currency bloc plunged by 10.4 percent, data from the Economy Ministry showed.

Big-ticket orders were well below their usual June levels and without them, bookings increased by 1.1 percent on the month.

The headline figure missed the Reuters consensus forecast for a 1.0 percent rise and undershot even the lowest estimate for a 0.5 percent decrease.

The Economy Ministry said "geopolitical developments and risks" probably led to more cautious ordering and a spokesman told a news conference that alongside the uncertainty caused by the tension between Russia and Ukraine, factors such as weaker euro zone appetite and lower bulk orders had also played a role.

NATO said on Wednesday Russia had amassed around 20,000 troops on Ukraine's eastern border and could use the excuse of a humanitarian or peacekeeping mission to send them in.

Analysts played down any impact of the Ukraine crisis on orders so far. Commerzbank economist Ralph Solveen said the strong decline in orders was due exclusively to a drop in notoriously volatile areas such as plane and ship orders, which he said was likely caused by a strong euro and a weaker global economy.

"Production is likely to fall in the coming months and that increases the risk the German economy will, after a slight dip in the second quarter, also disappoint in the third," he said.

The German economy grew at its strongest rate in three years in the first quarter but that was largely due to mild weather and it is generally seen slowing or even stagnating in the second quarter before accelerating again in the third.

A spokesman for the Economy Ministry told the news conference the German economy nonetheless remained "intact".

UKRAINE CRISIS

Andreas Rees, chief German economist at UniCredit Research, said while the downside risks had increased due the tension between Russia and Ukraine, hard data did not suggest it had taken its toll on companies in the second quarter.

Last week the European Union imposed sanctions targeting Russia's banking, defence and energy sectors. On Monday Germany said it had permanently halted Rheinmetall's planned export of combat simulation equipment to Russia.

Werner Deggim, head of German engineering firm Norma Group , told Reuters he was not particularly worried about the sanctions: "They won't have a serious effect on our business," he said, confirming the company's full-year forecast for 4 to 7 percent revenue growth.

The Economy Ministry said the order level in the second quarter was 0.6 percent below the level of the first quarter, largely due to weaker appetite at home. That could be a concern for the German government, which is relying on domestic demand to prop up growth this year as exports remain weak.

The ministry said growth in the industrial sector would tend to be moderate in the coming months.

Factories producing capital goods got 6.4 percent fewer bookings in June than in the previous month and contracts for consumer goods manufacturers dipped slightly. Intermediate goods orders were the only bright spot, rising 1.6 percent.

Data due out on Thursday is expected to show industrial output climbed by 1.3 percent in June.

The orders data for May was revised up to a drop of 1.6 percent from a previous -1.7 percent. (Editing by Alexandra Hudson and Alison Williams)

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