May 6, 2020 / 9:26 AM / 3 months ago

UPDATE 2-Virus-hit German industrial orders fall at record rate, outlook grim

(Adds detail, PMI, quotes, background)

BERLIN, May 6 (Reuters) - Orders for German industrial goods fell in March at their steepest rate since records began in 1991 as demand collapsed due to the coronavirus epidemic, and prospects of a swift recovery in Europe's biggest economy look bleak.

Germany is facing its deepest recession since World War Two even though a lockdown that has shuttered shops, businesses and factories is being gradually eased.

Foreign and domestic orders for goods slumped 15.6% on the month, Wednesday's Statistics Office figures showed, far worse than the 10.0% drop forecast in a Reuters poll of analysts.

Blaming the fall on the global economic shock of the virus and steps taken to slow its spread, the economy ministry dampened hopes of a quick pickup.

"It is to be expected that (industrial) production will decline sharply from March onwards due to the coronavirus," the ministry said.

Thomas Gitzel, Chief Economist at VP Bank Group, said the scale of the slump did not bode well. "Even during the financial market crisis, orders did not collapse as sharply," he said.

Chancellor Angela Merkel's government has tried to mitigate the impact of the crisis with a range of steps, including a 750 billion euro stimulus package, and a short-time work subsidy scheme that lets employers move staff to shorter hours and keep them on the payroll rather than laying them off.

Demand for capital goods was hit particularly hard in March, falling 22.6% while orders for consumer goods dipped 1.3%.

Economist Andreas Scheuerle at Dekabank said the figures did not show the full extent of the collapse, as the drop in new orders would be accompanied by a wave of cancellations.

However, he also noted that March suffered the double impact of the late effects of the epidemic in China and the start of lockdowns in Europe.

Germany's automotive sector has been hit particularly hard. Volkswagen said on Wednesday that demand in China was rebounding but that sales would not recover as quickly in other parts of the world.

On Tuesday, a German Constitutional Court ruling added uncertainty to the pace of the euro zone's eventual recovery, giving the European Central Bank three months to justify purchases under its flagship bond-buying programme or lose the Bundesbank's participation in the scheme.

Earlier on Wednesday, April's reading of Germany's IHS Markit's final composite Purchasing Managers' Index (PMI) for manufacturing and services plumbed a record low. (Reporting by Madeline Chambers Editing by Paul Carrel and John Stonestreet)

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