German industry weakens

New order for German industrial goods dropped 1.3 percent in August, marking an unexpectedly sharp decline from a gain of 0.3 percent in July, according to latest figures released by the German Economics Ministry Friday.

The seasonally adjusted data show export orders remaining steady compared with the previous month. However, domestic demand for industrial goods was shrinking by 3.0 percent, with producers of capital goods such as machines and vehicles hit especially hard.

Expecting the economic outlook for German industry to remain "very cautious," the Economics Ministry, however, rejected fears of a steeper turn for the worse.

"There are no indications of a steeper decline in economic activity," the ministry wrote in a statement, adding that business sentiment in Germany was improving.

The decline is bigger than expected by analysts who had predicted a drop in orders by 0.5 percent in a poll conducted by Reuters news agency.

Stefan Schlibe, economist with HSBC Trinkhaus, said falling orders were caused by weaker global demand affecting capital goods producers.

"We expect third-quarter economic growth in Germany to slow down to stagnation. However, we won't see a recession," he told Reuters.

The industrial downturn in Germany is especially noticeable on a year-on-year basis. The combined figures for July and August 2012 was down by 4.7 percent compared with the same period in 2011, with domestic order slumping by an even steeper 7.2 percent.

uhe/cg (dpa, Reuters, AP)