German industrial orders rebound 2.6%, beating expectations

BERLIN • Industrial orders in Germany bounced back in May to support expectations of an economic upturn, though simmering trade and political tensions may yet act as a brake on growth.

The 2.6 per cent rise in orders exceeded expectations, and followed a survey of purchasing managers that suggested Europe's largest economy ended the second quarter on a stronger footing. The Economy Ministry yesterday said industrial output was likely to rise moderately in the coming months, but it also noted growing uncertainty over restrictive trade policies.

The International Monetary Fund (IMF) - cutting its 2018 forecast for German gross domestic product (GDP) growth to 2.2 per cent - said protectionism and a possible hard Brexit had exposed the German economy to significant short-term risks.

"The increase in orders is pleasing, but not yet a liberation," Mr Ilja Nothnagel, foreign trade expert at the DIHK Chambers of Industry and Commerce, said. "The uncertainty caused by international trade policies is great," he said, as companies could no longer be sure that growth in key markets would continue to develop positively.

Global trade tensions are threatening to come to a head today with a tit-for-tat exchange of tariff penalties between the United States and China. President Donald Trump's protectionist drive also risks severely impacting Germany, whose most important export markets outside the European Union are the US and China.

The German economy grew by a calendar-adjusted 2.5 per cent last year, the strongest rate since 2011, propelled by vibrant domestic demand and resurgent exports. But the rate dipped to 0.3 per cent on the quarter in the first three months of this year.

"The upswing is alive, but it has passed its peak," Bankhaus Lampe economist Alexander Krueger said following the release of the Federal Statistics Office data yesterday.

Industrial orders had declined in the previous four months, including an upwardly revised drop of 1.6 per cent in April. May's advance beat a Reuters forecast for a 1.1 per cent rise. A breakdown of the figures showed the jump was mainly driven by demand from other euro zone countries and domestic clients, with orders for capital goods and consumer goods rising the most.

The Economy Ministry said the four monthly drops from January to April were linked to a strong jump in orders in the second half of 2017, as well as first-quarter weakness in the global economy and uncertainty about trade policy. "The order backlog is still very high and business morale is still better than the long-term average despite a recent deterioration," it said.

Mr Thomas Gitzel of VP Bank said the orders figures suggested the German economy's relatively weak performance in the first quarter was just a blip. "Provided the trade dispute does not escalate further, German GDP will regain some momentum in the second half," he said.

The IMF, whose previous 2018 growth forecast for the German economy was 2.5 per cent, edged its 2019 estimate up to 2.1 per cent from 2 per cent.

"Short-term risks are substantial as a significant rise in global protectionism, a hard Brexit, or a reassessment of sovereign risk in the euro area, leading to renewed financial stress, could affect Germany's exports and investment," it said.

REUTERS

A version of this article appeared in the print edition of The Straits Times on July 06, 2018, with the headline 'German industrial orders rebound 2.6%, beating expectations'. Print Edition | Subscribe