German powerhouse hit by sudden fall in orders for industry

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German industry suffered a surprise fall in orders in May, official data showed Wednesday, highlighting a risk that Europe's mainstay economy could slide towards a new recession.

Orders dropped 0.5 percent in May, the government said, at a time when concern is growing that tough austerity measures in the 16-nation eurozone could snuff out recovery and trigger a new downturn.

The economy ministry said orders had dropped in two key sectors, intermediate goods used in the production of finished products and the auto industry.

Analysts polled by Dow Jones Newswires had forecast a gain of 0.5 percent in May following a revised 3.2 percent rise in April from March.

But ING senior economist Carsten Brzeski cautioned that the latest data "should be seen as a pure technical correction which had to occur at some point in time after an impressive rally."

"With industrial confidence still improving, order books still filling and increasing hiring intentions, any slowdown in the coming months should be mild," he forecast.

The economy ministry noted that "the trend in industrial orders remains oriented strongly higher, despite the present decline."

"Industrial production remains on the path to recovery," it added.

Economists are watching European economic data closely amid signs that the continent's recovery might be near the top of its cycle.

In June, a key leading indicator of eurozone growth, the purchasing managers' index (PMI) compiled by data and research group Markit, slowed for the second month in a row amid weaker exports, waning domestic demand and a slowdown in orders.

The eurozone economy grew by a slight 0.2 percent in the first quarter of 2010, official European Union data showed Wednesday, as tough spending cuts began to bite across the crisis-hit bloc.

The slump in German orders was the result of "a less than average volume of large contracts for a month of May," particularly in the metallurgy sector, a ministry statement said.

Orders for intermediate goods dropped by 2.4 percent on the month, while those for investment goods rose by just 0.4 percent, the data showed.

Automakers were among the industrial groups that trimmed orders, the ministry noted.

The sector is bracing for an end to car-scrapping premiums worldwide that have boosted sales.

But the economy ministry also published a two-month sliding average designed to smooth out exceptional events, and on that basis industrial orders for April and May gained a robust 5.6 percent from the level in February-March.

When compared to a trough in April-May 2009, orders leapt by 27.3 percent.

The German economy contracted last year by just under five percent, but the government has issued an official growth forecast of 1.4 percent for 2010, and bank economists expect growth to be significantly stronger than that.

© 2010 AFP

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