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German industrial orders post strongest drop in seven months

BERLIN (Reuters) - German industrial orders posted their biggest drop in seven months in January, a further sign that Europe’s largest economy had a subdued start to 2019, although December’s figure was revised to show a rise rather than the previously reported fall.

FILE PHOTO: Construction cranes are pictured beside the tower of the Red City Hall in Berlin, Germany, March 1, 2016. REUTERS/Fabrizio Bensch/File Photo

Contracts for goods ‘Made in Germany’ were down by 2.6 percent on the month, Economy Ministry data showed on Friday, marking their steepest fall since June 2018 and confounding forecasts for a 0.5 percent increase.

The figure for December was revised to an increase of 0.9 percent rather than the drop of 1.6 percent announced a month ago. The Federal Statistics Office put the revision down to large orders for December being reported late.

“But the current decline in orders points to a continuing slowdown in the industrial sector at the start of the year,” the Economy Ministry said.

In the less volatile two-month comparison setting December/January against October/November, orders still fell by 0.5 percent.

Bookings for intermediate, capital and consumer goods all fell in January, a breakdown of data showed. Both foreign and domestic orders declined.

Separate data from the VDMA engineering association published on Friday showed contracts in that sector declining by 9 percent on the year in January as bookings from the euro zone tumbled by 22 percent.

The figures add to a growing sense of gloom about the sector after a Purchasing Managers’ Index showed declining exports contributed to a contraction in manufacturing for the second month running in February.

“There’s no end to the weak phase in German industry in sight,” said Commerzbank economist Ralph Solveen.

“The industrial sector will likely continue to put the brakes on the German economy for the time being, especially because sentiment indicators are not yet pointing to any turnaround.”

The German economy, which was traditionally propelled by exports, has switched to relying on consumption for growth and an Economy Ministry document seen by Reuters shows the government expects state spending to rise this year, providing much-needed impetus.

Record high employment, rising wages and low interest rates have been encouraging consumers to splash their cash and a GfK survey has shown morale among shoppers held steady heading into March.

Trade frictions and the risk of Britain leaving the EU this month without a deal are major risks for the German economy, which only just avoided a recession -- defined as two successive quarters of contraction -- at the end of last year.

The Ifo institute has said business sentiment and other indicators point to a growth rate of 0.2 percent in the first quarter. Finance Minister Olaf Scholz has said he is confident that modest growth lies ahead.

Additional reporting by Reinhard Becker; Writing by Michelle Martin; Editing by Tassilo Hummel and Catherine Evans