BERLIN • German industrial orders bounced back in August, rising more than expected on strong foreign demand, data showed yesterday, suggesting that factories will contribute to overall growth in Europe's largest economy in coming months.

Industrial companies registered a 3.6 per cent increase in orders after contracts for "Made in Germany" goods fell by an upwardly revised 0.4 per cent in July, data from the Economy Ministry showed.

The reading for August was the strongest monthly increase since December last year. A data breakdown showed domestic demand rose 2.7 per cent while foreign orders jumped 4.3 per cent, propelled by a 7.7 per cent increase from customers outside the euro zone - despite the recent appreciation of the single currency.

"Orders activity further picked up recently from an already high level," the ministry said, adding that the positive trend was backed by good business morale and strong output figures. "The solid upturn in the manufacturing sector should therefore continue," it added.

ING Bank chief economist Carsten Brzeski said the "summer explosion in new orders" was likely the result of some bulk orders. Nevertheless, the strong August figure all of sudden made this a strong year for new orders, he said. "Combined with strong business surveys showing production expectations as well as orders books close to record highs, the German industry looks all set to end the year at maximum speed."

Bankhaus Lampe economist Alexander Krueger was a bit more cautious, saying he doubted that the German economy could shift into an even higher gear after already strong growth rates in the first two quarters of the year.

The German economy grew 0.7 per cent on the quarter in the first three months of the year and 0.6 per cent from April to June, driven by increased household and state spending as well as higher investment in buildings and machinery.

Leading economic institutes last week raised their growth forecast for the German economy to 1.9 per cent this year and 2 per cent next year. This would translate into calendar-adjusted gross domestic product rates of 2.2 per cent and 2.1 per cent respectively.

REUTERS