* Industry orders -1.3 pct vs f'cast +1.2 pct
* Domestic demand for capital goods -4.1 pct
* Economist says points to ongoing weak investment
By Sarah Marsh
BERLIN, July 5 A slide in demand for capital
goods at home drove an unexpected 1.3 percent drop in German
industry orders in May, underscoring fragility in Europe's
largest economy and disappointing hopes it might support
The second monthly drop in seasonally and price-adjusted
order intake compared with a consensus forecast in a Reuters
poll of 37 economists for a 1.2 percent rise. It was a steeper
fall than even the lowest forecast for a 0.7 percent slide.
"The decline is a bitter disappointment," said Andreas
Scheuerle, economist at Dekabank. "The fall in domestic orders
for capital goods is worrying, as this points to a continued
weakness in investment."
Scheuerle said German companies had held back on investments
since the euro zone's debt crisis escalated in 2011.
"We need at long last positive news on the debt crisis to
reduce the uncertainty - the events in Portugal were
counterproductive in this regard," he said, referring to a
political crisis in Portugal that flared up this week,
threatening Lisbon's adjustment under a bailout.
Recent data has painted a mixed picture of the German
economy, which held up well in the first few years of the euro
zone's debt crisis but shrank at the end of last year, only
narrowly avoiding a recession in the first quarter of 2013.
Sentiment surveys have improved and exports, imports and
output have all risen. But a Purchasing Managers' Index (PMI)
published earlier this week showed the manufacturing sector
shrank in June, while Germany's VDMA engineering association on
Thursday slashed its forecast for 2013 production.
Industry orders fell by a revised 2.2 percent in April,
according to the data from the Economy Ministry. They were
originally reported to have fallen 2.3 percent. The fall is
already seen feeding through to output in May, which is forecast
to have dropped by 0.5 percent.
Domestic orders fell 2 percent, with demand at home for
capital goods slumping 4.1 percent, raising concerns that the
domestic economy will not be able to compensate for sluggish
demand from the euro zone, where Germany's traditionally
export-oriented economy ships some 40 percent of its goods.
Industry orders from abroad dropped 0.7 percent in May,
driven by a 3.9 percent fall in orders from the euro zone.
The Economy Ministry said a lack of big-ticket items
contributed to the weak industry orders data.
The German economy is still outperforming peers within the
euro zone. Data on Friday showed France's trade deficit with the
rest of the world widened sharply in May, while Spain's
industrial output fell for the 21st month in a row.