German industrial orders drop much more than expected in May

By Maria Martinez

BERLIN (Reuters) -German industrial orders fell much more than expected in May, ending a recent pickup and hit by a slump in demand from within the euro zone, data showed on Friday.

Orders declined by 1.4% on the previous month on a seasonally and calendar adjusted basis, the German statistics office said. A Reuters poll of analysts had pointed to a fall of 0.1%.

The slump was primarily due to a 17.7% month-on-month drop in orders in the computer, electronic and optical products sector, where several large-scale orders were recorded in April.

Orders also fell sharply in the electrical equipment and basic metals sectors.

Excluding big-ticket orders, which are often highly volatile, industrial orders overall fell 3.1% on the month.

Foreign orders rose by 2.9% on the month, but orders from the euro zone fell by 6.5%. Orders from outside the euro area increased by 9.0%.

If the euro continues to gain strength, reducing Germany's competitiveness, a slowdown in incoming orders from outside the euro zone is to be expected, said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

Domestic orders fell by 7.8% on the month, the statistics office said.

"It is possible that this weakness will soon be broken if the investment booster and accelerated depreciation rules make investments more attractive," de la Rubia said.

The German government has approved a tax relief package to stimulate investment and bring the economy back to growth after two years of contraction.

The less volatile three-month on three-month comparison showed that new orders in the period from March to May were 2.1% higher than in the previous three months.

A revision of provisional data showed that new orders in April increased by 1.6%, instead of 0.6% reported previously. The revision reflected late reporting of some orders in the automotive sector.

Although the decline in May is less of a concern after accounting for the upward revision to April's data, the surge in production at the end of the first quarter was fully reversed in the first two months of the second quarter, said Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics.

A noticeable increase in June, which is quite possible given the slightly improved mood among companies reflected in the Ifo business climate index, would change the picture again, said Ralph Solveen, senior economist at Commerzbank.

"But even then, this upward trend would be rather subdued and would hardly signal a strong upturn in industry," Solveen said.

(Reporting by Daria Bogdanska in Gdansk and Maria Martinez in BerlinEditing by Ludwig Burger)

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