Germany's industrial output was better than expected in March, raising hopes of a recovery in the economy, a ministry report showed Friday.

Data released by Germany's Federal Ministry of Economics and Technology revealed that industrial output remained flat month-on-month in March, following a revised 3.4% fall in February. Industrial output also fared better than economists' expectations of a 1.3% decline in March.

During the month, production of intermediate goods and consumer goods declined 2.4% and 2% respectively. However, capital goods rose 2.5% for the first time in six months, reflecting a 15.4% increase in the production of cars and motor vehicle parts.

Year-on-year, industrial output plunged 20.4% in March, slower than a revised 21.3% drop in February, and smaller than a 20.9% fall expected by economists. In the first quarter, industrial production was down 12% on a quarterly basis.

The slower pace of contraction in the industry was also reflected by increased factory orders in March. According to the data released by the Federal Ministry of Economics, factory orders rose 3.3% month-on-month in March, reversing the 3.1% fall in February. Year-on-year, factory orders dropped 26.7% in March, slower than a 38% drop in February.

The trade data released earlier in the day by the Federal Statistical Office also showed some improvement in the economy. The trade surplus unexpectedly increased in March, as exports rose for the first time in six months. The trade surplus expanded to EUR11.3 billion in March from EUR8.6 billion in February, and came in higher than economists' expectations of a surplus of EUR 8 billion.

The Deutsche Bundesbank said the current account surplus also came in higher at EUR10.2 billion in March versus EUR 6.8 billion in February and stood above expectations of a EUR 7 billion surplus.

The European Central Bank Governing Council member Axel Weber had pointed out earlier in the month that the German economy was not expected to grow before the second half of next year. At the same time, he indicated that recessionary trend in the coming months would not be as pronounced as it was in the past few months.

The European Commission also expect the German economy to contract this year, by 5.4%, but grow 0.3% next year.

The Federal Ministry of Economics also pointed out last month that the economy was likely to grow next year, helped mainly by a recovery in exports and the stimulus plan of the government. The Ministry forecasts the economy to contract 6% this year, but recover by 0.5% next year.

Commenting on the production data, Commerzbank economist, Ralph Solveen said the German economy is expected to fall again in the second quarter, but by no means as steeply as in the first quarter. Solveen noted that the scrapping incentive had a noticeably positive impact.

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