German engineering industry expects rise in exports to U.S.

German and U.S. flags flutter above the Karwendel mountains in the Bavarian village of Kruen

By Georgina Prodhan and Tom Käckenhoff

DUESSELDORF, Germany (Reuters) – Germany’s engineering association expects exports to its top foreign market, the United States, to rise this year after a slide in 2016 as business sentiment is underpinned by a rising oil price and the absence of last year’s election uncertainty.

The head of the VDMA, which has often warned about President Donald Trump’s protectionist trade stance, said those factors remained despite evaporating optimism regarding Trump’s ability to propel economic growth by fiscal stimulus and tax cuts.

“I don’t expect exports to the United States to fall. On the contrary, I think they should increase,” Carl Martin Welcker told Reuters in an interview on Wednesday, but added: “Business is always sentiment. It can fall just as fast.”

The VDMA is Germany’s largest industrial association, with over a million workers and 2016 sales of 220 billion euros ($237 billion). Its members include large companies such as Siemens <SIEGn.DE> as well as thousands of medium-sized firms.

Welcker said Europeans should now focus on persuading Trump’s administration to see the benefits of transatlantic trade. “I wouldn’t advise the Europeans to get their heavy weapons out of the cellar. We have to convince them,” he said.

Welcker stuck to his forecast for just 1 percent output growth by the VDMA’s members this year, after higher demand for German machinery from other euro zone countries drove a 9-percent increase in engineering orders in January.

“A month is not much to go on,” said Welcker, ahead of the publication of February orders on Thursday. He cited Britain leaving the European Union, French and German elections, Trump, and a Turkish referendum as factors making 2017 hard to predict.

Welcker said the VDMA’s exports to “important countries like China” had started the year better than expected, but sales in its biggest market, Germany, were stagnant, highlighting the risks to domestic production of rising labor and energy costs.

Exports to Russia had likely hit rock bottom, Turkey was unlikely to show any growth for the next few months and Iran was turning out to be a disappointment, he said.

Brexit, which was formally triggered on Wednesday, was the topic of much discussion in the industry but had not yet had any real effect in terms of causing German engineering firms to change their investment plans, he said.

He said he hoped for minimal disruption to trade with Britain but understood the European Union’s need to make sure the UK did not gain an advantage by leaving, with the risk of encouraging others to follow suit.

“I do think we have a certain influence… but politics has primacy,” he said. “There are boundaries, which we respect.”

(Editing by Susan Thomas and Alexander Smith)