Trump commercial threats bite orders from German factories

BERLIN (Reuters) – German industrial orders fell unexpectedly in July due to weak foreign demand, according to data released Thursday in another sign that the factories of Europe's biggest economy feel the president's protectionist policy American Donald Trump.

The Federal Statistical Office said that contracts for "Made in Germany" products fell by 0.9% after a revised fall of 3.9% the previous month.

The reading was lower than a poll conducted by Reuters with analysts who had predicted a rise of 1.8%.

The Ifo economic institute, however, said Germany's economic recovery will continue, as a strong domestic economy is a buffer against external shocks.

"We are currently facing a strong economic recovery in Germany," said Timo Wollmershaeuser, Ifo economist. "Private consumption this year and next year will be largely driven by job growth and strong revenue growth."

The Ifo Institute has raised its 2018 growth forecast for Germany to 1.9% against 1.8% previously, citing a performance above expectations in the first half.

It forecasts gross domestic product growth rates of 1.9% in 2019 and 1.7% in 2020.

The DIW Economic Institute and the IWH research group reported separately that they expect German growth of 1.8% in 2018 and 1.7% in 2019.

"There is no sign of an economic slump," said DIW chief economist, Claus Michelsen.

"However, companies are only investing for the moment, partly because their sales prospects are clouded by trade disputes," he added.

TIT-FOR-TAT

Trump has unleashed trade disputes with China, Europe and many other regions by imposing high tariffs on a wide range of products in its commitment to protecting US jobs against what it calls unfair commercial practices.

Global markets are booming after Trump threatened new tariffs on Chinese imports worth $ 200 billion and the Chinese Ministry of Commerce said it would be forced to retaliate.

Industrial orders from abroad fell 3.4% in July, as demand from non-euro area customers plunged the most, according to the data. Domestic orders increased 2.4%.

A breakdown by sector of the figures shows that capital goods orders were particularly weak. Demand for consumer goods declined slightly while orders for intermediate goods increased.

The Ministry of Economy pointed out that trade-related uncertainties were the main reason for the drop in orders in six of the last seven months.

"Order intake in the manufacturing sector has slowed significantly since the beginning of the year, after a very strong second half of the year in 2017," the ministry said.

"The global uncertainty caused by trade conflicts has probably played a role here," the report adds.

Andreas Rees, Unicredit analyst, also pointed to special effects such as vacations and slower production in the automotive industry due to changes in emissions regulations.

The appreciation of the euro has also resulted in a decline in the competitiveness of German producers by making their products more expensive for customers outside the single currency bloc.

The order data followed a survey released Wednesday by purchasing managers, which showed that growth in German services peaked in August in six months.