German industry orders slump on weak euro zone demand, outlook subdued

BERLIN (Reuters) - German industrial orders unexpectedly plunged in December on weaker demand from other euro zone countries, data showed on Thursday, suggesting that a manufacturing slump would continue to hamper overall growth in Europe’s largest economy.

FILE PHOTO: German carmaker Porsche hosts a photo tour showing the production and the manufacturing of the new Macan in Leipzig, Germany, December 13, 2018. REUTERS/Matthias Rietschel

Contracts for ‘Made in Germany’ goods fell 2.1% from the previous month, the Statistics Office said. That was the biggest drop since February and compared with the Reuters consensus forecast for a 0.6% rise.

“The orders situation remains terrible,” said Bankhaus Lampe economist Alexander Lampe. “The coronavirus means that we’ll probably have to keep waiting for a turning point.”

Responding to the potential impact of the outbreak of the virus in China, financial analysts have cut their growth outlook for the country, the world’s second-largest economy, with ratings agency Moody’s pointing to a risk to auto sales and production.

In a report entitled ‘Consequences of the coronavirus could cost Germany growth,’ economic institute Ifo said a 1-percentage-point slowdown in Chinese growth due to the virus would reduce German growth by 0.06 point - if the epidemic were to develop similarly to the SARS epidemic in 2003.

“However, there is some evidence that the corona epidemic could be more serious. In this case, the German economy would also be more severely affected,” Ifo added.

The German orders reading for November was revised to a smaller drop of 0.8% from a previously reported fall of 1.3%.

Commenting on the figures, the Economy Ministry said major fluctuations in foreign demand for large transport equipment accounted for about a third of the drop in demand in December.

“Overall, the outlook for the industrial economy remains subdued,” the ministry added.

Highlighting the slowdown, Siemens SIEGn.DE on Wednesday reported first-quarter results that missed forecasts after a slowdown in its industrial automation business and problems in its power and gas and wind power operations.

The German economy narrowly dodged recession last year, and the Ifo institute’s monthly survey last week showed business morale weakening, suggesting the economy got off to a slow start in 2020.

Germany’s export-dependent manufacturers are struggling with sluggish demand from abroad as well as business uncertainty linked to trade disputes and Britain’s decision to leave the European Union. The services sector is in better shape.

Chancellor Angela Merkel’s ruling coalition is at odds over how to spend the federal government’s budget surplus of 13.5 billion euros. Her conservatives are calling for corporate tax cuts, while center-left Finance Minister Olaf Scholz favors more public investment.

Writing by Paul Carrel; Editing by Michelle Martin and Bernadette Baum