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Strong domestic demand propels German industrial orders

Michael Nienaber
·2-min read
FILE PHOTO: A steel worker of Germany's industrial conglomerate ThyssenKrupp AG takes a sample of raw iron from a blast furnace at Europe's largest steel factory in Duisburg

By Michael Nienaber

BERLIN (Reuters) -German industrial orders rose for the second month in a row in February, driven by strong domestic demand, data showed on Thursday in a further sign that manufacturers are set to cushion a pandemic-related drop in overall output in the first quarter.

However, the growth outlook for Europe's largest economy remains clouded by a more contagious virus variant and rapidly rising COVID-19 cases that could force authorities to tighten restrictions once again in the coming weeks.

The data from the Federal Statistics Offices showed that orders for industrial goods in February rose 1.2% on the month in seasonally adjusted terms, in line with a Reuters forecast.

The solid increase in February came after a downwardly revised rise of 0.8% in January.

"Germany's manufacturing sector is humming," VB Bank economist Thomas Gitzel said, adding that industrial orders were more than 5% above pre-pandemic levels.

Domestic orders jumped 4% on the month in February while foreign orders fell 0.5%. Still, bookings from other euro zone countries increased 2.7%.

Looking at industrial sectors, the increase in the headline figure was equally driven by strong demand for capital and consumer goods, the economy ministry said.

STRONG U.S., CHINESE DEMAND

The VDMA engineering association said orders for mechanical and plant engineering had jumped 12% on the month in February, the first double-digit increase since October 2018.

The solid orders data chimed with a survey among purchasing managers released on Wednesday that showed growth in Germany's private sector accelerated in March to its highest level in more than three years.

The jump in IHS Markit's composite PMI was driven by factory activity which grew at the fastest pace on record thanks to a surge in demand from the United States and China, though the domestically oriented services sector also fared well.

However, in a sign that some manufacturers are currently having problems processing the flood of orders, real industrial sales fell in February by nearly 2% on the month in calendar-adjusted terms, the Federal Statistics Office said.

Since production and sales in manufacturing normally have a strong correlation, industrial output figures for February due on Friday could also come in weaker.

Commerzbank analyst Ralph Solveen said this supported the lender's expectation that gross domestic product (GDP) shrank by more than 2% in the first quarter.

The German government's council of economic advisers expects the economy to have shrunk by roughly 2% in the first quarter due to lockdown measures to contain the pandemic.

(Reporting by Michael NienaberEditing by Gareth Jones Editing by Caroline Copley and Gareth Jones)