BERLIN German industrial output rose moderately in February as increases in capital goods and energy production offset a weak construction sector, in a sign Europe's largest economy is slowly recovering after a dismal end to 2012.
Coming on the heels of figures showing a stronger-than-expected rise in industrial orders in February, Economy Ministry data on Monday showed output edging up 0.5 percent on the month. This was above the mid-range forecast in a Reuters poll of economists for a 0.3 percent rise.
But industrial output still fell 0.2 percent in the first two months of the year due to a downwardly revised drop in production of 0.6 percent in January. Output last month was originally reported unchanged.
"Production is stabilizing once again after the sharp decline at the end of last year," said Unicredit analyst Alexander Koch. "Given that retail sales is also rising and investments are stabilizing, we expect a return to economic growth in the first quarter."
Germany's economy, long resilient to the euro zone crisis, slowed in 2012 and output shrank by 0.6 percent in the fourth quarter. But economists expect it to avoid recession and to have returned to weak growth in the first three months of 2013.
German growth is crucial for stimulating the economy of the broader single currency bloc, struggling with a debt crisis and mired in recession.
Unicredit's Koch said the increase in orders and production of capital goods such as machinery was especially positive news for Germany's economy, which he sees growing 0.3 percent in the first quarter, as it spelled out a rebound in investment.
Manufacturing output increased by 0.5 percent as a 2.4 percent rise in capital goods such as machinery outweighed decreases in consumer and intermediate goods, the data showed.
Figures last week had shown domestic orders for capital goods jumping 4.4 percent, which the Economy Ministry said set the stage for a revival in investments. Industry orders rose 2.3 percent overall in February.
Germany's BDI industry lobby group also said on Monday a pickup in investments, which had been in contraction for five quarters, was crucial for economic recovery this year.
"We don't just want to deliver top products to the world, we also have to make sure that more is invested once again in Germany's industry," said BDI chief Ulrich Grillo, noting that economic policy needed to support this.
With federal elections looming in September, the BDI's Grillo warned against some of the center-left opposition's policy proposals such as raising inheritance tax or introducing a wealth tax, which he said would weigh on the industrial sector.
The BDI saw good chances the economy would pick up steam during the year and grow by up to 0.8 percent, he said. The government sees the economy expanding 0.4 percent.
Exceptionally harsh winter weather prevented Germany's industrial sector from rebounding strongly this quarter, economists said. Production in the construction sector dropped 2.7 percent, according to Monday's data.
"The harsh winter weather has not only affected the construction sector but the entire industry," said ING analyst Carsten Brzeski said. "Interestingly, the German economy has been hit much harder from the winter weather than the rest of the euro zone. Some might consider this a meteorological-inflicted rebalancing."
Brzeski said this explained the divergence this year between weak economic data and optimistic sentiment surveys. Recent polls have shown consumer morale holding steady going into April, and investor sentiment edging up.
Monday's output data also showed energy production jumping in February, by 3.9 percent. Figures last week showed Germany exported more electricity last year than it imported, dispelling fears about possible power shortages due to its transition from nuclear to renewable energy.
(Additional reporting by Klaus Lauer,; Editing by Gareth Jones and Catherine Evans)