German output surges as industry enjoys "extraordinary" start to year

By Paul Carrel

BERLIN (Reuters) - German industrial output surged in February and the trade surplus swelled as the engine room of Europe's largest economy fired on all cylinders to satisfy demand at home and abroad, assuaging angst about rising protectionism.

Describing an "extraordinarily robust" start to the year for industry, the Economy Ministry said output rose by 2.2 percent on the month, matching January's expansion. A Reuters poll had pointed to a dip of 0.1 percent in February.

Separate trade data showed a 0.8 percent rise in exports on the month in February, with imports falling 1.6 percent for a net expansion in Germany's trade surplus to 21.0 billion euros ($22.37 billion) from 18.9 billion euros in January.

"Today's reports on German industrial production and trade were both very strong," said JP Morgan economist Greg Fuzesi.

The robust German performance in February contrasted with an unexpected fall in British industrial output, adding to signs that British economic growth may have slowed as the UK prepares to leave the European Union.

The German readings are the latest in a batch of strong indicators and will help Chancellor Angela Merkel burnish her economic credentials before a Sept. 24 federal election, when she will seek a fourth term.

In March, German business morale rose to its highest level in nearly six years, hardening indications that the German economy made a strong start to 2017, helped by rising global demand for cars and machinery.

Growth in services also accelerated further in March, pointing to healthy growth in the first quarter..

Yet analysts said the robust performance enjoyed by German industry at the start of this year may not last.

"All that glitters is not gold," said Stefan Kipar at BayernLB. He pointed to a 13.6 percent surge in construction in February - something he said would not be repeated in the coming months - as one reason to doubt the expansion was sustainable.

"Secondly, incoming orders are not so dynamic for an expansion in output to be a sure thing in the coming months."

German industrial orders rose 3.4 percent on the month in February after a drop of 6.8 percent in January.

The German economy could yet be hit by U.S. President Donald Trump's "America First" protectionist rhetoric and political turbulence in Europe.

"The Brexit negotiations and a possible further weakening of the pound sterling, protectionist measures from the Trump administration and negative growth surprises from China pose a clear risk to the German economy," said ING economist Carsten Brzeski.

($1 = 0.9388 euros)

(Additional reporting by Rene Wagner; Editing by Michelle Martin, Larry King)