German factory orders increased more than economists forecast in January as domestic demand surged, suggesting the recovery in Europe’s largest economy is broadening.

Orders, adjusted for seasonal swings and inflation, advanced 2.9 percent from December, when they fell 3.6 percent, the Economy Ministry in Berlin said today. Economists forecast a gain of 2.5 percent, the median of 35 estimates in a Bloomberg News survey shows. In the year, orders rose 16 percent.
Germany’s recovery is gaining a firmer footing as companies boost domestic investment and hiring to meet export demand. Bundesbank President Axel Weber said last month the economy may expand 2.5 percent this year after record growth of 3.6 percent in 2010.
“In the immediate future we’ll see robust growth and strong momentum in German industry,” said Andreas Rees, an economist at UniCredit Group in Munich. “But through a slowdown in China and the higher oil price, a moderate setback could be on the way.”
Domestic factory orders jumped 4.5 percent from December and foreign orders advanced 1.6 percent, today’s report showed. Basic goods orders rose 4.6 percent, while orders for investment goods and consumer goods advanced 2 percent and 0.8 percent respectively.
“The trend in new orders continues to point upward,” the ministry said in a statement. Orders for big-ticket items were below average in January, it added. ----Rising costs
German business confidence unexpectedly rose to a record in February as booming exports spurred hiring and consumer spending. Investor sentiment also increased.
Volkswagen AG’s Audi division said today it will expand production in emerging markets including China after rising orders boosted earnings in 2010.
Audi plans to “keep expanding its model portfolio in the coming years at an undiminished pace,” the carmaker said in a statement. Adidas AG (ADS), the world’s second-largest sporting-goods maker, on March 2 raised its earnings forecast for 2011, saying growth was being driven by sales in China and other emerging markets.
At the same time, Germany is facing higher imported inflation, as global demand and unrest in the Middle East boost commodity prices.
Daimler AG (DAI), the maker of Mercedes-Benz cars, and tiremaker Continental AG (CON), both expect higher prices for goods such as steel and rubber to cut 700 million euros ($975 million dollars) from earnings this year.
German inflation accelerated to 2.2 percent last month, the fastest in more than two years.
Rising prices are a risk to the economic upswing, said Jens-Oliver Niklasch, an economist at Landesbank Baden- Wuerttemberg in Stuttgart. “But it would be much too dramatic to say it is a fatal blow for the recovery.”
(Source: Bloomberg)