Germany industry loses momentum as exports fall

By Paul Carrel

BERLIN, May 8 (Reuters) - Germany's exports and industrial output both fell in March as foreign demand waned, leaving the world's top exporter of goods vulnerable to a slowdown in economic growth in coming months.

Preliminary figures on Thursday showed that exports fell by 0.5 percent on the month, hit by weaker European demand in a fresh sign euro zone growth is slowing.

Imports rose 0.8 percent, trimming the trade surplus to 15.4 billion euros ($23.61 billion) from 16.3 billion in February.

Germany has been the world's largest exporter of goods since 2003 and sold almost 1 trillion euros worth abroad last year. For years, foreign trade has been an engine of growth but a weaker global economy and the strong euro are sapping its drive.

"Exports are clearly losing momentum," said Ulrike Kastens, economist at private bank Sal. Oppenheim. "The export train continues to roll, but at a much slower pace."

The fall in exports from Europe's largest economy was the second in a row and confounded expectations for a small rise.

Industrial output also lost some momentum late in the first quarter, falling by 0.5 percent in March. The drop was marked by a 12.3 percent decline in construction output as the sector eased after profiting from mild weather earlier in the year.

Output rose 2.3 percent in the first quarter but a drop in manufacturing orders for the fourth month in a row in March pointed to a weaker outlook for industry.

The orders data, released on Wednesday, compounded evidence of weakening momentum in the economy after business morale fell sharply in April. Growth in the manufacturing sector also slowed in April, a survey of purchasing managers showed last week.

"For the manufacturing industry, the decline in orders in recent months and the significant clouding over of sentiment point to a weakening in output momentum in the coming months," the Economy Ministry said in a statement with the output data.

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EURO IMPACT

Companies are also having to deal with the euro's strength against the dollar. The common European currency has risen by around 10 percent in a year.

German heavy diesel engine maker Tognum reported weaker-than-expected first quarter results on Thursday, citing the weak dollar.

However, automotive parts supplier Robert Bosch GmbH said it expected to shrug off the firmer euro and generate revenue growth of around 5 percent in 2008.

"The operating environment may have weakened, but we do not foresee a global downturn. In light of that, we expect the Bosch Group to continue to perform well on the whole," Chief Executive Franz Fehrenbach said in a statement.

The fall in exports was marked by weak demand within the euro zone. Other economies in the common currency area have been showing signs of losing momentum, particularly in the south.

In Spain, industrial output fell 2.6 percent on the year in March, and economists are expecting French March output data, due Friday, to show a 0.2 percent monthly decline. Analysts now expect the Italian economy to show barely any growth in 2008.

"Growth has cooled significantly, particularly in the southern euro zone countries, and that is affecting exports," said Commerzbank economist Matthias Rubisch.

In another sign the German economy may be weakening, the Finance Ministry said a panel of tax experts had revised down their forecast for Germany's total tax take this year to 554.4 billion euros from a November estimate of 555.6 billion.

The German government expects economic growth to slow to around 1.7 percent in 2008 from 2.5 percent last year. Next year it has forecast expansion of some 1.2 percent.

(Reporting by Paul Carrel, Dave Graham, Noah Barkin and Madeline Chambers; Editing by Ruth Pitchford)

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