German industrial orders bounce back, but supply bottlenecks weigh

By Michael Nienaber

BERLIN (Reuters) -German industrial orders rose more than twice as much as expected in June, driven by bookings from domestic clients for large manufacturing products, but weaker turnover suggested that supply bottlenecks continued to hold back production.

The figures published by the Federal Statistics Office showed orders for goods ‘Made in Germany’ jumped by 4.1% on the month in seasonally adjusted terms.

This was the strongest increase in 10 months and easily beat a Reuters forecast of a 1.9% increase, more than offsetting a slightly revised drop of 3.2% in May.

Excluding major orders, new orders in manufacturing still rose 1.7% on the month.

Domestic orders soared nearly 10%, with producers of data processing equipment, lens systems, planes and ships benefiting from unusually strong demand, the economy ministry said.

“Incoming orders also rose in the important car and mechanical engineering sectors,” the ministry added.

Orders for engineering companies soared 53% in June from the previous year due to stronger demand from both domestic and foreign customers, industry association VDMA said on Thursday.

“Investments in equipment, machines and services are high on the agenda around the world,” VDMA chief economist Ralph Wiechers said.

The German economy, Europe’s largest, returned to growth in the second quarter but bounced back less strongly than expected as manufacturers struggle to get intermediate goods and building materials to ramp up production.

“Although the order backlog is high, it cannot be processed quickly due to ongoing delivery bottlenecks for intermediate products and materials,” Bankhaus Lampe analyst Bastian Hepperle said.

In a further sign that more orders are currently not translating into higher output, real turnover in manufacturing fell by 1.4% on the month in June in seasonally adjusted terms, the office said. On the year, real turnover rose by 8.6%.

The supply bottlenecks in manufacturing will continue to hold back production, so industry is likely to slow down the economic recovery in the third quarter as well, Hepperle added.

Undersupply of semiconductors, as outbreaks of the Delta coronavirus variant in Southeast Asia have crippled its factory sector, is leading to production downtimes in the car industry and many other industrial sectors.

“But the shortage of skilled workers is also becoming more and more noticeable,” VP Bank economist Thomas Gitzel said.

The current recovery is supported by strong retail sales, which jumped in May and June following the lifting of COVID-19 restrictions.

A survey indicated on Wednesday that domestic demand remains strong, with activity in the service sector growing at the fastest pace on record in July.

(Reporting by Michael Nienaber; Editing by Maria Sheahan, Kevin Liffey and Emelia Sithole-Matarise)