Production jumped 2.8 percent from February, when it fell 0.3 percent, Economy Ministry data showed Tuesday. That's the sharpest increase in 8 months and far stronger than the consensus forecast of a 0.8 percent rise.
March's sharp rise in German industrial production reduces the risk that the economy is already in recession, Jennifer McKeown, senior European economist at Capital Economics, said in a note to clients.
Rising demand for consumer goods, as well as a significant rebound in the construction sector, contributed to March's strong result. Construction soared 30.7 percent on the month after a 16.9 percent drop in February.
Consumer goods output was up 3.0 percent on the month, with durable goods rising 1.1 percent and non-durables advancing 3.4 percent.
The total volume of output from Germany's factories rose by 0.1 percent in Q1 as a whole, far better than the 1.8 percent fall in the last three months of 2011.
However, the annual growth rate remains modest, at 1.6 percent.
The German economy contracted 0.2 percent in the fourth quarter of last year as the euro zone's debt crisis weakened demand for its goods.
We still see German GDP expanding by only 0.5 percent this year and the economy might well slip back into recession in 2013 as the euro zone crisis continues, McKeown said.
Separate data on Monday showed that orders in Germany's key manufacturing sector rose sharply in March, benefiting from a 4.8 percent jump in orders from outside the euro zone, while orders from within the currency bloc were flat.
Germany's benchmark DAX share index fell 58.30 points, or 0.89 percent, to trade at 6,511.18 on Tuesday. It is up 8.13 percent this year. The euro depreciated 0.4 percent to $1.30.