Ukraine crisis sours German industrial orders

7th May 2014, Comments 0 comments

The crisis in Ukraine is beginning to hurt the German economy, with industrial orders, a key measure of demand for German-made goods, taking an unexpected hit in March, data showed on Wednesday.

After rising consistently for the preceding four months, industrial orders were down 2.8 percent month-on-month in March, the economy ministry said in a statement.

In February, factory orders had increased by 0.9 percent.

The ministry attributed the March decline to a sharp drop in foreign orders, particularly those coming from the eurozone.

Overall export orders were down by as much as 4.6 percent with orders from the single currency area nose-diving by 9.4 percent.

Taking January to March combined to iron out short-term fluctuations, overall orders stagnated, the ministry calculated.

The ministry insisted that the overall trend in industrial orders "remains pointing upwards, but is likely to tail off somewhat."

A contributing factor here would be a "temporary reluctance to place orders in view of the current geo-political developments," the ministry suggested.

"All in all, the upturn in the manufacturing sector will be driven by robust domestic demand and demand for industrial goods outside the euro area," it said.

UniCredit analyst Andrea Rees described the March data as an "unpleasant surprise."

While some technical correction had been in the pipeline after persistently upbeat figures in the previous few months, "the drop was massive," Rees said.

But the expert insisted that the March data should not simply be taken at face value.

"A strong positive counter reaction in April is very likely. The upward trend in the German manufacturing sector is intact with some transformation from solid foreign demand to stronger domestic growth forces," Rees said.

Commerzbank economist Ralph Solveen felt that following the previously sharp increases, "German manufacturing seems to be pausing."

The sharp drop in orders in March was partially attributable to weaker orders for aircraf and trains, "where orders always fluctuate heavily. But even without this sector, orders came in 1.5 percent lower than in February," Solveen said.

He said the data "concurs with our view that the growth rate of real GDP will turn out much weaker in the second quarter than the solid rate of around 0.75 percent which seems to be on the cards for the first quarter."

"Sentiment indicators, however, are still very positive, suggesting that this is a temporary soft patch, but not the end of the upward movement that has been in place since late 2012," Solveen said.

BayerLB economist Stefan Kipar agreed.

"The continued strength of domestic orders suggests that the recovery in Germany will be driven largely by domestic demand," the expert said.

"We believe the weak March data are simply a breaher and the general upwards tend will continue in the coming months," Kipar said.


© 2014 AFP

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