(Aug 6): German factory orders rose by more than analysts forecast, another sign that a long-awaited recovery in Europe’s biggest economy may finally be taking hold.

Demand climbed 3.1% in June, following a downwardly revised 0.3% gain in May, the statistics office said on Thursday. That marked a second monthly increase, and exceeded the highest prediction in a Bloomberg survey.

Mechanical engineering products and data processing, electronic and optical equipment led the increase. The rise was due to big-ticket items, while orders excluding that category decreased. A less volatile three-month reading showed a 1.3% improvement.  

The result extends a run of positive German economic data of late, culminating in better-than-expected growth in the second quarter alongside an upward revision of output in the first.

Business activity and confidence indicators have also come in stronger than anticipated, helped by large-scale fiscal spending and a package of reforms from the government in areas including pensions and bureaucracy. 

“The rise in domestic orders is a positive development, as the greatest positive impetus has so far come from the euro area,” said Vincent Stamer, an economist at Commerzbank. “The ‘hard data’ thus show that the uncertainty caused by the conflict in the Middle East is unsettling German consumers and businesses less than expected.”

Still, higher energy prices caused by the conflict in the Middle East continue to weigh on the energy-intensive economy, while record-low water levels in the Rhine river, a vital conduit for transporting goods in Western Europe, present another headwind.

“New orders in the manufacturing sector are currently trending upwards thanks to strong domestic demand,” the Economy Ministry said in a statement. “Significant growth among capital goods producers is likely related to public procurement projects for the modernisation of the German Armed Forces, as well as contracts under the special fund for infrastructure and climate neutrality.”

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