German growth on track, despite lower industry output

German industrial production eased in March, but not enough to derail recovery in Europe's biggest economy, data showed on Thursday. According to data compiled by the economy ministry, industrial output fell by 0.5 percent in March after rising by 0.6 percent in February. The drop was attributable to falling manufacturing output, which slipped by 0.4 percent, and lower construction output, which was down by 2.2 percent, the ministry calculated. Energy output on the other hand rose by 1.8 percent. Taking the period from January to March combined to iron out short-term fluctuations, industrial output grew by 1.2 percent compared with the preceding three months, the ministry said. "The underlying trend in the manufacturing sector continues to point upwards," it said. However, with the development in industrial orders dampened by the Ukraine crisis, "the upward trend may temporarily lose momentum somewhat," the ministry cautioned. This would particularly be the case in the construction sector, where the traditional spring upturn was proving more muted because the winter had already been very positive as a result of the mild weather.   On Wednesday, the ministry had revealed that industrial orders tumbled 2.8 percent in March as the Ukraine standoff soured demand for German-made goods. But analysts insisted that the output data showed the recovery was still intact. "While some pundits may claim that the small drop in output in March could herald a loss of momentum, monthly data are far too volatile to draw firm conclusions from that," said Berenberg Bank economist Holger Schmieding. "Leading and confidence indicators such as Ifo business confidence and the PMI indices do not herald a major setback for the second quarter," he said. Germany's upswing was broad-based, with domestic demand the key driver, he added. "The data are compatible with our 1.0-percent call for German growth with the first quarter with some upside risk," he said. BayernLB economist Stefan Kipar was also positive. "The March industrial output data support our forecast for growth of 0.6 percent in the first quarter," he said. But he cautioned: "The weak end of the quarter could be a burden for the second quarter, when growth will be weaker than in the first quarter." Nevertheless, the unbroken optimism among companies "suggest that the recovery will continue and the muted March data is only a temporary pause," Kipar said. Natixis economist Johannes Gareis said the strong quarterly reading for industrial output heralds well for the overall growth data, scheduled to be published next week. "Based on the recent data, we expect growth of 0.8 percent," Gareis said.