German industrial orders recover in February after sharp drop in January

By Michelle Martin

BERLIN (Reuters) - German industrial orders picked up in February after plummeting the previous month and the Economy Ministry said an upturn in the sector was on the cards, although a rise in contracts for Germany's factories was weaker than expected.

Contracts rose 3.4 percent on the month, data from the Economy Ministry showed on Thursday. That missed the Reuters consensus forecast for a 4.0 percent increase but came after an upwardly revised drop of 6.8 percent in January.

The data comes after a survey that showed manufacturing growth reached its highest level in almost six years in March, driven by an increase in orders for intermediate goods, suggesting the sector will contribute to an economic expansion in the first quarter.

"The increase in orders was important - otherwise concerns about production would definitely have been warranted," said Alexander Krueger, economist at Bankhaus Lampe.

"After all the zig-zagging around the turn of the year, the development of orders seems to have found its way again, but we still have the impression that sentiment indicators have sprinted too far ahead of the real trend," he said.

February's increase was driven by the strongest surge in domestic demand since May 2011, with companies in Germany ordering 8.1 percent more goods than they ordered in January, when they had significantly scaled back orders.

But foreign orders failed to contribute, with a breakdown showing bookings from the euro zone fell by 2.4 percent while non-euro zone contracts increased by 1.6 percent.

A breakdown of the February data showed demand for intermediate goods soared while appetite for consumer products rose and contracts for capital goods edged up.

The Economy Ministry said that in the less-volatile two-month comparison for January/February compared with November/December, orders declined by 2.4 percent, with domestic and foreign orders equally to blame. But it said it expected the industrial sector's performance to improve slightly.

Other recent data has shown unemployment falling, retail sales rising and growth in services accelerating, though engineering orders were flat in February as domestic orders dropped.

Forward-looking data has given reason for optimism too, with business morale hitting its highest level in nearly six years and investor morale improving despite the numerous risks that Germany's economy faces this year - unpredictable elections at home and in France, protectionist trade policies under U.S. President Donald Trump, and Britain's Brexit negotiations.

(Reporting by Michelle Martin, editing by Larry King)