German industrial orders plunge, darkening first-quarter growth outlook

By Reuters

Mar 05, 2015 06:48 AM EST

German industrial orders fell far more than forecast in January, posting their largest drop since August, data showed on Thursday, casting a shadow over what had previously looked like a strong start to 2015 for Europe's largest economy.

Bookings for goods made in Germany declined by 3.9 percent on the month after rising sharply in December, data from the Economy Ministry showed. The headline figure undershot the Reuters consensus forecast for a 1.0 percent decline and undercut even the lowest estimate for a 2.5 percent fall.

The decrease was driven by sharp declines in contracts for capital and intermediate goods and a smaller drop in orders of consumer products. The Economy Ministry said fewer bulk orders played a role.

Christian Schulz, senior economist at Berenberg Bank, said the drop was not as concerning as the big fall in orders last August, especially because the "Putin shock" had faded and confidence indicators had headed north.

"But it's a reminder that Germany's growth at the moment is driven by consumption and not by the manufacturing backbone of the economy which at least at the beginning of year should somewhat dampen the growth outlook," he said.

The disappointing figures come after a string of data had pointed to robust expansion in the first quarter, with business and investor sentiment surveys improving, unemployment falling and retail sales surging.

But other recent data on the industrial sector has been upbeat, with engineering orders climbing by 3 percent on the year in January thanks to strong demand from abroad while a survey showed manufacturing sector growth picking up due to the strongest rise in new orders in seven months.

Private consumption drove 1.6 percent growth in Europe's economic powerhouse in 2014 but Schulz said other sectors were likely to gain traction in the second half of this year.

"Because of cheap oil and the weaker euro and very low funding costs we expect things to gradually improve in the economy and then to grow with all its pillars - investment, consumption, exports in the second half of the year," he said.

A breakdown of the data showed demand from the euro zone plummeted by 9.0 percent, while appetite in Germany and countries outside of Europe also weakened.

The data for December was revised up to a 4.4 percent increase from an originally reported 4.2 percent gain.

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