IMF more upbeat on Germany outlook as factory orders rise

BERLIN (Reuters) - German industrial orders rose more than expected in March and the International Monetary Fund said on Monday it was “a bit more optimistic” about the outlook for Europe’s largest economy, which is heading into the second quarter on a solid footing.

The surprisingly strong economic data, published by the Economy Ministry, and the upbeat comments made by a senior IMF official in Berlin were the latest signs that the German economy’s solid start to the year may extend into the summer.

Contracts for “Made in Germany” goods were up 1.9 percent on the month, the biggest increase since last June. That beat a Reuters consensus forecast for a rise of only 0.7 percent.

Enrica Detragiache, assistant director of the IMF’s European department, said she had become more upbeat about Germany’s growth prospects.

“For now, we are a bit more optimistic than in April,” she told a news conference to present the IMF’s latest economic assessment on the German economy.

Last month, the IMF forecast German growth of 1.5 percent GDP in 2016. In 2015, the economy grew by 1.7 percent, the strongest rate in four years, driven mainly by strong private consumption and higher state spending on refugees.

Germany’s domestic industrial orders fell by 1.2 percent in March, but foreign demand rose by 4.3 percent, with bookings from countries outside the euro zone soaring by 6.2 percent.

“The solid economic development in the U.S. is currently an important pillar of (German) domestic industry,” said VP Bank economist Thomas Gitzel, adding that companies also seemed to be benefiting from recent positive economic news from China.

Dirk Schlotboeller, economist at DIHK Chambers of Commerce, said that weak domestic investment remained a problem for the German economy. “Domestic orders are again disappointing, the trend is still pointing downward,” Schlotboeller said.

For the whole first quarter, industrial orders rose by 0.5 percent on the quarter, with bookings from abroad increasing by 2.0 percent and domestic orders falling by 1.3 percent.

The surprisingly strong March figure suggests that industrial output is likely to pick up in the coming months.

“Despite the overcast foreign trade environment, German industry was able to post a noticeable increase in orders from abroad,” the Economy Ministry said in a statement, adding it expected industry to continue its moderate growth pace.

The IMF said Germany should take advantage of record-low borrowing costs and step up public and private investment to meet infrastructure needs.

Leading economic institutes have said the German economy probably expanded by around 0.6 percent on the quarter in the January-March period - twice as much as in the fourth quarter.

Preliminary data for German gross domestic product in the first quarter is due to be published on Friday.

The economy is expected to grow this year at around the same pace as last year’s 1.7 percent expansion, despite slackening exports due to an economic slowdown in China and other emerging markets.

Reporting by Michael Nienaber; Editing by Paul Carrel and Alison Williams