September 6, 2017 / 12:25 PM / 19 days ago

German factory orders fall on weak domestic demand

BERLIN (Reuters) - German industrial orders fell unexpectedly in July on feeble domestic demand while appetite from abroad was flat, data showed on Wednesday -- a rare sign of weakness in Europe’s largest economy less than three weeks before federal elections.

Recent buoyant economic figures had underlined the strength of the German economy and its consumption-led upswing ahead of the Sept. 24 vote in which Angela Merkel is expected to win a record-equalling fourth term as chancellor.

“This is not adding fuel to the hype about the economy,” Bankhaus Lampe economist Alexander Krueger said, although he noted that the overall trend in orders is still upwards.

Factories registered a 0.7 percent drop in orders in July after contracts for goods made in Germany rose by 0.9 percent in June, data from the Economy Ministry showed. The reading for July far undershot a Reuters forecast of a 0.3 percent rise.

Excluding volatile bulk orders, the headline figure was up 0.6 percent in July, the ministry said.

The stronger euro did not seem to have dampened demand, with orders from countries outside the 19-member single currency bloc rising by 0.6 percent in July, Stefan Kipar at BayernLB said.

LESS CONSUMER GOODS

Workers assemble an e-Golf electric car at the new production line of the Transparent Factory of German carmaker Volkswagen in Dresden, Germany March 30, 2017. REUTERS/Fabrizio Bensch/File Photo

The overall drop was mainly caused by a plunge in demand for consumer goods, but intermediate and capital goods orders also edged down on the month, a data breakdown showed.

Commerzbank analyst Ralph Solveen said the figures suggested that factories would still contribute to overall growth in the third quarter, but to a lesser extent than in the first half.

The Federal Statistics Office will publish industrial output data for July on Thursday (0600 GMT).

The ministry said order activity remained on a very high level overall. “In the past three months, German companies have registered nearly as many orders as they did before the outbreak of the economic and financial crisis in 2008,” it added.

Orders and sentiment indicators pointed to a continuation of the solid upswing in the sector, the ministry added.

Recent figures have shown the number of Germans out of work falling further, consumer morale improving and the manufacturing sector expanding.

The German economy grew by 0.7 percent on the quarter in the first three months of the year and by 0.6 percent from April to June, driven by increased household and state spending as well as higher investment in buildings and equipment.

The International Monetary Fund (IMF) expects the German economy to grow by 1.8 percent in 2017 and by 1.6 percent in 2018 in real terms. This would be slightly below the 1.9 percent in 2016, which was the strongest rate in five years.

Reporting by Michael Nienaber; Editing by Catherine Evans

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