By Stefan Kramer
FRANKFURT (MktNews) - New orders in the German engineering and machinery sector, the country's largest industrial export sector, lost some steam in February, according to data released Thursday by the German machinery manufacturers' association (VDMA), but the situation is not as bad as the figures suggest, according to VDMA's chief economist.
As reported, German plant and equipment orders in February were down a real 5% from the level seen in the same month last year, as domestic orders fell 5% and foreign orders slipped 6%.
The latest data extend the downtrend in German plant and equipment orders seen since the middle of last year. The February y/y growth figure was the first negative reading in 14 months and well down from the May 2000 peak of +34%.
At first glance, the latest VDMA data add to evidence that the slowdown of the German economy, the largest in the 12-nation euro area, is picking up steam, a development that could see the European Central Bank cut interest rates soon.
A closer look at the February machinery orders data, however, suggests that the German economy may be holding up somewhat better than most analysts believe, Ralph Wiechers told Market News International in a brief telephone interview. "There were some important bulk orders in February 2000 but not in February 2001," said Wiechers. In addition, there were two more working days in February 2000 than in the second month of this year, he noted.
"The magnitude of this effect is amplified by a high capacity utilization rate of more than 90% in our sector," he added.
"Taking these two special factors into account, new orders (in February) were still significantly in positive territory in our calculation," Wiechers said, attempting to put a positive spin on the February numbers.
"Nevertheless, it is true that the dynamic has eased somewhat recently," he conceded.
"But 10 of 33 of the branches in our sector still had double-digit growth rates" for new orders in the December 2000-February 2001 period, compared to the same three-month span a year earlier," Wiechers said.
"That is hardly a crisis," he said.
VDMA's latest figures show that compared to a year before, total German machinery orders were up 4% in the December-February period, with domestic orders having improved by 1% and foreign demand by 6%.
"We have seen high growth rates for new orders since August 1999, and that was certainly not sustainable for ever," Wiechers said. "Still our companies have orders in their books for 5.7 months."
This also explains why turnover was so high in February, since companies had to work through the orders, which they could not fill in the months before, according to Wiechers. Normally it takes four months from the time that orders are received until they are filled, he said.
"One month's figures should never be overemphasized," Wiechers argued, playing down the fact that non-adjusted foreign orders declined 11% in February but foreign turnover increased 17%.
"From a high level it is always hard to continue to grow," he said. "But it is possible that the change of speed (to a slower pace) will continue" in the months ahead, Wiechers said.
For the future it will be decisive how the NAFTA economy develops, which counts for 10% of total turnover in the German engineering sector, said Wiechers. Of even greater importance will be the development of the European economy, including Germany, which accounts for 70% of turnover.