RTTNews - Germany's factory output rose at its fastest pace in almost sixteen years in May, suggesting that a recovery is not far away for the recession-hit economy.

Factory output rose 3.7% month-on-month in May after falling a revised 2.6% in April, the Federal Ministry of Economics and Technology said Wednesday. That was the biggest monthly increase since August 1993 and exceeded forecast for a 0.5% rise.

Production of capital goods grew 8.3% in May from the previous month and manufacturing output rose 5.1%. Moreover, production of intermediate goods increased 4.3%.

The encouraging news came a day after the ministry said factory orders rose 4.4% month-on-month May, the biggest increase since June 2007.

However, on an annual basis, industrial production fell 17.9% on a working day adjusted basis, slower than the 20% decline predicted by economists and follows a revised decrease of 22.3% in April.

The rise in orders and production Suggests that industry has probably now passed the trough in the cycle, Commerzbank analyst Ralph Solveen said.

The analyst noted that the recent trend shown by companies to rebuild stocks after the strong reductions in the wake of the Lehman shock is not just a short-term special effect, but it indicates the beginning of a more lasting recovery.

Germany's Finance Ministry said in June that the economy is still contracting and may bottom out in the second half of the year. The Organization for Economic Co-operation and Development had said the German economy is likely to contract by 6.1% this year and then to grow 0.2% in 2010.

But, the BDB banks' association is of the view that the German economy may take another five years to fully recover from the current financial crisis. They also pointed out that after an expected 6% contraction this year, a relatively strong recovery is not possible.

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