German growth outlook brightens as orders climb

German industrial orders rose more sharply than expected in April with strong demand from euro zone peers outweighing a slip in domestic demand, data showed on Friday, while the Bundesbank lifted its outlook for growth in Europe's largest economy.

Orders for goods made in Germany surged by 1.4 per cent overall on the month, the strongest rise so far this year, data from the Economy Ministry showed on Friday, beating expectations in a Reuters poll for a 0.5 per cent rise.

The increase in April was driven primarily by a powerful upturn in demand from abroad, which jumped 5.5 per cent on the month, led by orders from the euro zone, while domestic demand fell by 3.8 per cent. It was the biggest increase in foreign orders since July 2014.

The ministry said that industrial production was likely to continue gaining momentum with the upswing in the euro zone giving additional stimulus.

"The gains in orders from the euro zone show that Germany is starting to reap the benefits of the rebound in growth across the euro zone," said Berenberg economist Holger Schmieding.

Demand for consumer goods soared by 4.5 per cent on the month while demand for capital goods increased by 2.3 per cent. But the index for intermediate goods fell by 0.9 per cent.

The March data was also revised up slightly to show an increase of 1.1 percent after a previously reported rise of 0.9 per cent.

"The strong increase in industrial orders has brightened the outlook for the second quarter," said Commerzbank analyst Ralph Solveen.

In a separate report on Friday, the Bundesbank raised its growth forecast for both this year and next, saying German workers were benefiting from a robust labour market and hefty wage increases.

The central bank expects the economy to expand by 1.7 per cent in 2015, well up from its December estimate of 1 per cent although slightly less optimistic than the government, which expects domestic demand to drive a 1.8 per cent expansion this year.

The Bundesbank also raised its prediction for 2016 growth to 1.8 per cent from 1.6 per cent. Looking further into the future, the central bank said that it saw gross domestic product (GDP) increasing by 1.5 per cent in 2017.

It predicted that harmonised consumer price inflation would rise by 0.5 per cent in 2015 and 1.8 per cent in 2016.

In the first quarter of 2015, Germany’s GDP increased by 0.3 per cent. This was a marked slowdown from the 0.7 per cent growth achieved in late 2014, with foreign trade largely to blame.

For the second quarter, leading economic institutes expect the German economy to gain momentum with an predicted rise of around 0.5 per cent.

Reuters