Germany industrial orders drop in June: official data

IMF says German trade surplus contributes to trade tension

FRANKFURT, Aug 6, (Agencies): Industrial orders in Germany fell more than expected June, official data showed Tuesday, as global trade tensions weighed on Europe's top economy.

New contracts at industrial firms plunged four percent month-onmonth, federal statistics authority Destatis said in figures adjusted for seasonal swings, following a 2.6 percent increase in May.

Analysts surveyed by Factset had predicted a far smaller drop of 0.25 percent in June.

Analyst Carsten Brzeski from ING Diba bank described the June reading as a "cold summer shower".

"Disappointing new orders data show tentative signs of trade tensions hitting the German economy, which doesn't bode well for the industrial outlook in the second half of the year," he said.

The June slump was led by orders from outside the eurozone, which were down nearly six percent.

Orders within Germany and the euro area fell nearly three percent.

The economy ministry in Berlin said that with the exception of the May rebound, order intakes had been "weak" so far this year.

"Uncertainty caused by trade policies may have played a role," it said in a statement.

Companies around the world are nervously eyeing a deepening trade war between the United States and China, spurred by President Donald Trump's "America First" agenda.

Trade relations between the US and the European Union are also tense after Trump imposed tariffs on metals imports, prompting retaliatory EU duties.

Trump has also threatened to slap hefty tariffs on foreign cars, which would badly hurt German auto makers.

Looking ahead, the German economy ministry was nevertheless optimistic about the second half of the year.

"The order backlog remains high and despite the cloudy spell, the business climate is clearly still positive."

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BERLIN: Germany's hesitancy to reduce its trade surplus is contributing to trade tension and adds to risks that could undermine global financial stability, Maury Obstfeld, chief economist at the International Monetary Fund (IMF), said.

"In (current account) surplus countries such as Germany we see hesitant measures, at best, to counteract the surplus," Obstfeld wrote in a guest commentary published in German daily Die Welt on Monday.

The IMF and the European Commission have long urged Germany to boost domestic demand by lifting wages and investment to reduce what they call global economic imbalances. Since his election, US President Donald Trump has also repeatedly criticised Germany's export strength.

Obstfeld said that countries like the United States, in which the external current account balance is too low, should reduce budget deficits, encourage households to save more, and gradually normalise their monetary policy.

Countries in which the balance is too high, like Germany, should increase government spending, for instance by investing in infrastructure or digitalisation, so that companies invest more domestically rather than looking abroad.

"The net external positions will diverge more. That increases the risk of disruption by currency or asset price adjustments in indebted countries, to the disadvantage of all," he said.

"If there is a sudden adjustment, then both the debtor and creditor countries will suffer," he added.