BERLIN (Reuters) – German industrial orders rose less than expected in March after two months of sharp declines, data showed on Tuesday, bringing little relief to Europe's biggest economy, which faces a sharp slowdown in growth and reduction of tax collection.
German exporters were hit by weaker overseas demand, trade tensions triggered by US President Donald Trump's "America First" policies, and Brexit's trade uncertainty.
Domestic factors include problems in the auto industry, where companies are struggling to adjust to more stringent emissions rules.
Goods contracts "made in Germany" rose 0.6 percent, Federal Statistics Office figures showed, underestimating a consensus forecast of 1.5 percent.
The increase in March was mainly due to mass orders, the ministry of economy said. "Data from industrial orders suggest that manufacturing activity will remain subdued in the coming months," he added.
Excluding bulk orders, industrial orders fell 1.9 percent in March, the ministry said.
"Along with weak indicators of corporate sentiment, this is another sign that the industrial sector is in deep recession," said Commerzbank's Ralph Solveen.
For the first quarter as a whole, industrial orders fell 4.1% in the quarter, with the fall mainly caused by weaker demand from abroad, the Economy Ministry said.
Industrial order reading for February was revised slightly to a 4.0 percent drop from a previously reported drop of 4.2 percent. In January, orders fell 2.1%.
The German government reduced its growth forecast in 2019 to 0.5%. This would mark a marked slowdown after expansion rates of 2.2% in 2017 and 1.4% in 2018.
The difficult trading environment means that domestic demand is likely to be the main driver of growth this year, aided by record employment, rising real wages and low borrowing costs. Increased state spending and construction are expected to give the economy an additional boost.
The slowdown is reducing tax revenues and thus the budget surplus, making it harder for Finance Minister Olaf Scholz to inject additional fiscal stimulus into the economy as all coalition parties Chancellor Angela Merkel have agreed not to issue new debt.
Scholz, a Social Democrat, will present updated estimates of tax revenue on Thursday. The numbers are likely to show that Berlin will have less fiscal space to increase state spending from 2019 to 2023.
"Politicians need to become more courageous," said Joachim Lang, managing director of the German association of BDI industries. He urged the government to reduce corporate taxes and increase incentives to support corporate research and development.
The German cabinet is expected to approve a bill next week that aims to support corporate research and development with new incentives worth 1.25 billion euros ($ 1.07 billion) annually from 2020.
Companies that do basic research or industrial development can apply for a bonus of up to 500,000 euros per year, with incentives not limited to small and medium enterprises.
"This is the right step … but the sum has to become larger so that companies can use this new instrument efficiently," Lang said.
(Reporting by Michael Nienaber; Editing by Andrew Heavens)