LONDON (Dow Jones)--German manufacturing orders dried up in December, bringing a disappointing end to what had looked a promising fourth quarter.
German manufacturers saw a 1.6% drop in new orders in the final month of the year, cutting the full-year increase to 3.9%, the German Economics Ministry reported Monday. This broke a three-month run of strong growth in German manufacturing, which had proved the top performer amid a downturn in the rest of Europe.
Germany's new orders growth had defied expectations for the past few months, and while economists had predicted a slowdown, they will be surprised by a slump. The average forecast of economists surveyed by Dow Jones Newswires last week was for a rise of 0.5% in December.
The 1.6% drop more than reverses November's 1.3% growth, which the Bundesbank in January revised down from the ministry's initial estimate of 1.7%.
The economics ministry Monday played down the significance of the decline, which it said was understandable given the sharp increases of the preceding months.
"The trend of orders capacity is headed further upwards," the ministry said. "Positive stimuli for industry can continue to grow from here in the coming months."
The two-month comparison, which irons out some volatility, painted a more favorable picture of new orders performance. Orders grew 1.5% in November-December on the previous two months, and were up 8.5% on the year-earlier period.
The slowdown in Germany's industrial orders at the end of last year is bad news for European growth, coming amid discouraging figures from the rest of Europe. In France and Italy, purchasing managers' reports from the manufacturing sector suggest that activity has fallen back.
Lately, Germany has been seen as the last firing engine of European manufacturing growth. The country's industrial production figures due Tuesday are expected to show activity up 0.9% on the month in December.
The resilience of Germany's manufacturing sector is crucial at this point in time, as there is precious little growth momentum elsewhere in the economy, given poor consumer demand and a sluggish services sector. Outstanding exports performance in the third quarter drove German growth up to 0.6% on the quarter, but it's unlikely that this impetus lasted to the end of the year.
Economists may see these latest data as a blip - they have recently been encouraged by renewed growth in business investment in the latter half of 2005, which they say may mean a revival of domestic demand. This will be key if foreign demand slides in the coming months, as some fear.
"Whilst we believe that the external environment for German growth will turn less favorable in the period ahead, a broadening of domestic growth forces will likely help sustain the business cycle," UBS economists said.
Indeed, foreign demand showed the sharpest decline in the latest batch of figures. Foreign orders fell 1.8% on the month in December, compared with a 1.9% rise the previous month. But domestic orders also fell, by 1.4%.
The following table compares preliminary seasonally-adjusted December and November data for German manufacturing orders volume. Index values are based on 2000=100.
Dec Nov Change
Total Orders 112.9 114.7 -1.6%
Domestic Orders 100.1 101.5 -1.4%
Foreign Orders 128.9 131.3 -1.8%
Orders to makers of:
Producer goods 110.9 110.7 +0.2%
Capital goods 117.7 121.1 -2.8%
Consumer/durable goods 99.7 101.5 -1.8%
The following table includes preliminary unadjusted December manufacturing orders volume data for Germany and percentage changes from December 2004. Index values are based on 2000=100.
Dec Change on Year
Total Orders 114.0 +3.9%
Domestic Orders 97.1 -2.5%
Foreign Orders 135.2 +10.5%
Orders to makers of:
Producer goods 103.5 +8.5%
Capital goods 127.6 +1.0%
Durable goods 83.8 +5.9%
Consumer goods 97.8 +3.4%
Web site: www.destatis.de
-By Emily Barrett, Dow Jones Newswires; +44 207 842 9314; firstname.lastname@example.org
(END) Dow Jones Newswires