Germany's industrial order books swell to record high in May

BERLIN, July 17 (Reuters) - Germany's industrial order backlog rose to a record high in May, the statistics office said on Friday, highlighting strong demand for a manufacturing sector that has endured a prolonged downturn.

The backlog of outstanding orders grew by 1.7% in May compared with the previous month, the office said, the sharpest increase since September 2021, when there were catch-up effects due to the COVID-19 pandemic.

As a result, order books are the fullest since the data series began in 2015.  

However, Bethmann HAL bank chief economist Alexander Krueger warned that high order levels are only valuable if they translate into actual production.

German industrial production rose more than expected in May, according to the statistics office, while S&P Global's manufacturing PMI data for June showed output ticking up for a sixth straight month. 

"Despite the governing coalition's reform package, companies are likely to remain cautious in this regard," said Krueger, citing challenging business conditions and higher energy costs.

Many companies are also increasingly shifting production abroad rather than keeping it in Germany, he said. 

"Orders are also likely to continue piling up for the time being, partly due to renewed tensions in the Middle East," he said. "Supply bottlenecks are hampering production."

The reach of the order backlog, a measure indicating how long firms could continue producing at current turnover levels without receiving new orders, rose to 8.9 months in May, also the highest level since the statistics were first compiled.

The increase was driven mainly by mechanical engineering, where the backlog grew 3.3% from the previous month. 

(Reporting by Rene Wagner and Miranda MurrayEditing by Tomasz Janowski)