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Trade Spats Weigh on German Manufacturers as Orders Slump

German manufacturers took a hit in June as a slide in overseas demand knocked factory orders amid escalating trade tensions.

Orders fell 4 percent from the previous month — eight times as much as forecast in a Bloomberg survey of economists — and the 0.8 percent drop from a year ago was the first annual decline since July 2016. The Economy Ministry acknowledged that “uncertainty from trade policy played a role” as demand from non-euro-zone countries led the slide.

While the figures pre-date last month’s agreement by the U.S. and European Union to hold off from further tariffs as long as negotiations are ongoing, they highlight the potential for trade spats to dent Europe’s largest economy. German business sentiment has been eroded since the turn of the year, with companies expressing concern over the outlook.

BMW AG joined automakers from around the world last week in warning that trade tensions could drag down profits in the coming months. The company is also worried about escalating U.S.-China trade threats as it ships sport utility vehicles to China from its South Carolina plant.

“Today’s new orders data do not bode well for German industry going into the second half of the year,” said Carsten Brzeski, chief economist at ING-Diba in Frankfurt.

The Economy Ministry’s report showed overseas orders fell 4.7 percent in June, with demand from non-euro-zone nations slumping 5.9 percent. Worrying signs also came from investment goods — which slipped 4.7 percent—and a 2.8 percent drop in domestic orders. Total orders sank 1.5 percent in the first half of the year.

Figures on industrial production and trade are due on Tuesday, with economists predicting that output dropped 0.5 percent in June and exports fell 0.4 percent. Second-quarter economic growth data will be published on Aug. 14.

In a clue that the agreement by the U.S. and EU to pull back from the brink of a trade war has allayed some concerns, a gauge of euro-area investor confidence published on Monday rose for second month. The Sentix index for August climbed to the highest since May, with the researcher noting “signs of relief.”

—With assistance from Andre Tartar and Kristian Siedenburg.