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German Factory Orders Recover Strongly In February

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German factory orders grew much more than expected in February underpinned by both domestic and foreign demand, signaling that conditions may have improved in the first quarter.

Factory orders grew 2.3 percent in February from the prior month, the Federal Ministry of Economics and Technology said Friday. The increase reversed January's revised 1.6 percent drop and far exceeded the 1.1 percent increase forecast by economists.

Recovering from a decline, foreign orders advanced 2.3 percent, while the growth in domestic demand accelerated to 2.2 percent from 0.1 percent.

New orders have been on a zig-zag trend for almost a year. Today's increase is good news, as it shows that the industrial backbone is not running out of steam, but it is no reason to become overly cheerful, ING Bank NV's economist Carsten Brzeski said.

Orders for intermediate goods grew 0.9 percent and that for investment goods by 3.5 percent. Consumer goods demand edged up only 0.1 percent.

The current revival of orders help the industrial sector to increasingly overcome its weak phase, the ministry said. The main driver of this positive development is rising domestic demand from producers of capital goods.

On a yearly basis, overall factory orders remained flat on a working day adjusted basis after easing 2.1 percent in January. It was forecast to fall 1.5 percent.

However, on an unadjusted basis, factory orders declined 2.9 percent annually compared to the 1 percent decline in the prior month.

Recent Purchasing Managers' survey suggests that Germany's private sector activity reached a near stagnation in March, with new orders easing for the first time so far this year. Moreover, unemployment increased notably in March as companies failed to create more jobs.

The results of GfK's survey revealed that consumer confidence is set to remain unchanged in April. However, the firm said that the impact of the Cypriot financial crisis on the German household sentiment is yet to be measured.

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