Rise in German industrial orders bodes well for coming months

By Michelle Martin

BERLIN (Reuters) - German industrial orders increased unexpectedly in October thanks to domestic and non-euro zone demand, data showed on Wednesday, suggesting this sector of Europe's biggest economy is likely to gain steam in the coming months.

Contracts for 'Made in Germany' goods rose for a third consecutive month, with Economy Ministry data showing factories took 0.5 percent more orders in October than in the previous month despite bulk orders being below average for the month.

The reading confounded expectations in a Reuters poll for a 0.3 percent drop and came after an upwardly revised 1.2 percent increase in bookings in September.

"Industry is continuing to fly high," said Alexander Krueger, economist at Bankhaus Lampe KG. "In light of the strong preceding months, the moderate growth in October is a good result."

But he said high capacity utilisation made him suspect the pace of growth would not pick up further despite bulging order books.

The German economy has been expanding since 2010 and gained traction in the third quarter but worries are mounting as Germany still lacks a new government more than two months after a national election.

Chancellor Angela Merkel's conservatives lost votes to the far-right in the September poll and are now hoping the Social Democrats (SPD) will agree to a re-run of the current 'grand coalition' after talks on forming a three-way alliance with the environmentalist Greens and pro-business Free Democrats failed.

Nonetheless, the Economy Ministry said strong order activity, combined with record-high business confidence, pointed to the manufacturing sector continuing to grow strongly.

A breakdown of the orders data showed foreign demand picked up by 0.5 percent as a 1.6 percent surge in contracts from outside the currency bloc offset a 1.2 percent drop in euro zone bookings. Domestic contracts were up by 0.4 percent.

Appetite for both capital and consumer goods increased in October, although demand for intermediate goods was down slightly.

In the less volatile two-month comparison, contracts were overall 3.4 percent above the level of the previous two months.

That chimes with other recent data, which has painted a broadly positive picture of the manufacturing sector. Engineering orders increased by 9 percent on the year in October while factory growth hit its second-highest in more than two decades in November.

(Reporting by Michelle Martin; Editing by Catherine Evans)