German manufacturing orders declined more than expected in February, extending the decline to the sixth consecutive month. Elsewhere, the government expanded the size of its car-scrapping scheme.

The Federal Ministry of Economics and Technology said on Wednesday that orders to German manufacturing firms fell 3.5% month-on-month in February after falling 6.7% in January. Economists had expected a 2.1% fall for February. Orders fell for the sixth straight month.

On an annual basis, orders plunged 38.2% in February following 36.8% drop in January, while the consensus forecast was for a 36.5% decline. It was the tenth consecutive month of decline in orders.

Commerzbank analyst Ralph Solveen said industrial production would keep falling at least into the second quarter. The analyst added that in the first quarter, German gross domestic product probably contracted even more severely than in the final quarter of 2008.

This should be enough bad news for the European Central Bank to cut the key rate by another 25 basis points and consider farther-reaching quantitative measures, Solveen said.

Elsewhere, the German government on Wednesday more than tripled its car-scrapping bonus scheme to EUR 5 billion from an initial EUR 1.5 billion. The scheme is expected to benefit nearly two million people, an increase from the initial estimate of about 600,000. The scheme was to end on May 31, but now extended till the end of the year.

The scrapping scheme, which is part of the government's EUR 50 billion-stimulus package announced in January, pays EUR 2,500 to buyers of new cars in exchange of their old vehicles. The scheme gained popularity in the country.

Solveen said the scrapping incentive for old cars has stabilised orders in domestic market, but of course it has not stopped the universal slump.

The government's decision is expected to have an impact on Chancellor Angela Merkel's coalition government when it faces national election in September 2009.

Also on Wednesday, the Federal Statistical Office reported that calendar and seasonal adjusted exports decreased 0.7% month-on-month in February, subsequent to 7.4% decline in January. On an annual basis, overseas sales plunged 23.1% in February versus a 23.2% fall in January.

On a monthly basis, imports fell for the fifth straight month with February recording a 4.2% decline after a slower 1.8% drop in January. On an annual basis, imports were down 16.4% following a 13.7% decrease in the prior month. The annual fall in imports extended for the fourth straight month.

The foreign trade balance showed a surplus of EUR 8.7 billion in February, but down from EUR 17.1 billion surplus recorded in the same month of the previous year. Upon calendar and seasonal adjustment, the foreign trade balance recorded a surplus of EUR 8.9 billion.

For comments and feedback: contact editorial@rttnews.com