German economy to pick up this year: economy ministry

BERLIN (Reuters) - The German economy will gradually regain momentum this year after contracting in the last three months of 2012 as the global economic backdrop improves, the economy ministry said on Monday.

"While weak developments in industrial output and construction point to a contraction in gross domestic product (GDP) in the fourth quarter of 2012, there are increasing signs that we will soon overcome this period of weak economic growth," the ministry said in a monthly report.

It cited improved industrial orders, which rose 0.8 percent in December as demand from the euro zone picked up, and to sentiment surveys that have shown businesses, investors and consumers becoming more optimistic.

Germany's economy contracted by 0.5 percent in the fourth quarter, according to a preliminary estimate. Economists generally see it avoiding a recession, defined as two consecutive quarters of contraction, by growing moderately in the first quarter.

"The weak phase in the global economy seems to have reached its low point already. International indicators are once again increasingly sending positive signals," the ministry said.

Recent data has shown stronger international trade in China and a report indicated that the U.S. trade deficit had narrowed in December, pointing to improving global demand.

The ministry said a stabilisation of international financial markets and in the real economy had made companies and consumers feel more upbeat about Germany's economic prospects.

The fourth-quarter contraction led shoppers to postpone purchases, shown by a steep drop in German retail sales in December, but a noticeable rise in wages last year combined with tax cuts at the beginning of 2013 mean private consumption should hold up, the ministry said.

Data released this month has shown a slight upturn in the German economy, with modest increases in exports, industrial orders and output while sentiment surveys have improved, the private sector expanding and unemployment falling.

(Reporting by Alexandra Hudson, writing by Michelle Martin, editing by Stephen Brown; Editing by John Stonestreet)