BERLIN German exports and imports edged up in July and industrial output rose unexpectedly, showing sustained resilience in Europe's largest economy to the euro zone crisis, but economists expect to see increased signs that business is now flagging.
Data from the Federal Statistics Office showed exports and imports from Europe's growth engine inched up a seasonally adjusted 0.5 percent and imports gained 0.9 percent in July, boosting expectations that domestic demand will carry the German economy through the debt crisis and a global slowdown in demand.
Separate figures released on Friday showed industrial production climbed by a better-than-expected 1.3 percent on the month in July as factories churned out more durable and capital goods, while construction activity also increased.
"That is a good start to the third quarter. There are no signs of an economic crisis or a serious recession," said Holger Sandte at WestLB Mellon.
"Germany is still in relatively good shape but gross domestic product could nonetheless shrink slightly in the summer. We expect it to go down by 0.2 percent," he added.
Recent data has painted a mixed picture of the German economy, which has proved fairly robust through much of the euro zone's three-year-old debt and financial crisis.
Economic growth slowed to 0.3 percent in the second quarter and many economists predict a contraction for the third and possibly the fourth quarters.
But Friday's trade figures show the bloc's dominant economy is buying more goods from struggling euro zone countries desperate to offset their own austerity measures.
A breakdown of data showed that imports from the euro zone rose 6.7 percent on the year in July, compared with a more subdued 1.9 percent overall year-on-year rise.
Exports to the euro zone also rose, up 3.2 percent on the year, although they jumped 15.9 percent to countries beyond Europe, suggesting there is still strong demand for German products.
Data on Thursday had shown industrial orders edging up in July, with the Economy Ministry saying contracts from the euro zone, where Germany sends around 40 percent of its exports, appeared to have stabilized. But economists said the rise in orders was a technical rebound after June's weak figures.
"Industrial orders remain stable this year to date. While sentiment is subdued, surveys suggest it has slightly improved again and this points to industrial production remaining robust," the Economy Ministry said on Friday.
The output data for June was revised upwards to a fall of 0.4 percent from a previously reported drop of 0.9 percent, but economists pointed to weak spots in the outlook.
"The good July figures do not in any way change the prospect that the industry trend is pointing significantly downwards in the coming months. Sentiment indicators point very clearly to that," said Ralph Solveen at Commerzbank.
August's Ifo survey showed German business sentiment dropping on the back of increasing worries about the future level of exports and last month's purchasing manager index showed new export orders shriveling at their fastest rate since April 2009.
"It does not look like activity in the industrial sector will dramatically slide," said Andreas Rees of Unicredit.
"However it is only a question of time until the bad values in the Ifo and purchasing manager indices translate into hard data."
The VDMA engineering trade body on Thursday raised its forecast for full-year output to 2 percent growth thanks to stronger-than-expected production in the first half but said output would be more sluggish in the second half.
Purchasing managers' surveys showed Germany's services sector shrank at its fastest rate in more than three years in August while the manufacturing sector contracted for a sixth consecutive month.
Carmaker Volkswagen (VOWG_p.DE) has cut its expectations for full-year sales, German daily Handelsblatt reported on Friday, while vehicle parts supplier Schaeffler said last week it may cut production in the final quarter.
The seasonally adjusted trade surplus narrowed to 16.1 billion euros from a revised 16.3 billion in June. The consensus forecast had been for it to narrow to 15.5 billion euros.
(Reporting by Sarah Marsh and Michelle Martin, editing by Gareth Jones/Ruth Pitchford)