Cold weather helped to drag down German industrial production slightly in January by hurting construction output, but the general trend was strong, with activity in the core manufacturing sector rising substantially.
Output dipped by a seasonally-adjusted 0.1 percent from the previous month, Economy Ministry data showed on Thursday, but only because the December number was revised to show a 0.7 percent gain instead of the 0.5 percent fall first reported.
The mid-range forecast of economists polled by Reuters last week was for a January gain of 1.1 percent.
Analysts were unfazed by the output dip, saying the economy remained on track to bounce back from a slowdown late last year.
Bank of America economist Holger Schmieding said that allowing for the weather disruptions, and looking at the two months together, the trend in output was "solid."
"That fits the picture that the data we've seen so far underestimated the true position," he said. "I wouldn't be surprised if the fourth quarter GDP figures were revised up."
DekaBank economist Andreas Scheuerle agreed, but noted that this meant quarterly growth during the January-March period might then not be as strong as had hitherto been thought.
"So far, we had been expecting growth of 0.6 percent. That could come down by one or two tenths of a point," he said.
Europe's largest economy stagnated unexpectedly in the final quarter of 2005, but leading indicators and official data have fed hopes of a considerable rebound in the first quarter.
The Ifo institute's measure of business confidence hit a 14-year high in February, while the latest data on retail sales, manufacturing and engineering orders all showed strong gains.
Earlier on Thursday, the Kiel-based IfW economic think tank revised up its 2006 growth forecast for Germany by 0.6 percentage points to 2.1 percent, which would be the strongest gain since the economy grew by over three percent in 2000.
Economy Minister Michael Glos seized this and an upwardly revised forecast from Wednesday by the Essen-based RWI institute as fresh evidence that Germany was moving up a gear.
"The most recent forecasts confirm that the German economy is in an upswing," he said in a statement. "For the first time in five years, domestic demand is picking up."
German growth has been powered in recent years by strong exports, which analysts say have profited from an increased corporate competitiveness in relation to other economies.
The Federal Statistics Office said on Thursday that German hourly labour costs had fallen during the fourth quarter of 2005 for the first time in at least 10 years, suggesting wage restraint, which has been strong for years, is not letting up.
DekaBank's Scheuerle said that while this did not help private consumption, it was vital for German firms.
However, frustration about efforts to cut bonuses and extend working hours has boiled over in the public sector, which is now in the fifth week of its biggest strikes in 14 years.
The Economy Ministry data suggested that but for a 7.3 percent decline in construction output, which was hurt by cold weather, total production might have risen, since manufacturing output - easily the biggest component - rose 1.3 percent.
"Developments in output should be seen against the backdrop of hindrances to construction output caused by poor weather and unpredictability in the energy sector," the ministry said.
The ministry noted that gains in manufacturing orders, which rose 1.4 percent in January, would feed through into production, so that output gains in coming months were likely. Energy output also exercised a drag on January production, falling by 8.3 percent after a gain of 3.7 percent in December.
A breakdown of the manufacturing data showed that output of intermediate goods, consumer products and investment goods in particular all increased during January.
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