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BERLIN (Reuters) - Higher demand at home and abroad for goods needed in production drove the biggest monthly increase in German industrial orders in around 2-1/2 years in December, suggesting the first quarter of 2017 may be getting off to a strong start.
The much stronger-than-expected data, released by the Economy Ministry in Berlin on Monday, gave some reassurance that Germany's economic upswing will carry into 2017 despite growing political uncertainties that include the potentially protectionist U.S. trade agenda.
"A sensationally strong quarter in the manufacturing sector," Sal. Oppenheim economist Ulrike Kastens said, adding that the figures were pointing to an overall economic recovery in the euro zone.
"Despite the political uncertainties, the German economy is showing a more than robust development," Kastens said, adding she now expected quarterly growth of around 0.6 percent in the first quarter after 0.5 percent in the final quarter of 2016.
In a sign that private consumption will continue to boost German growth, nominal wages rose 2.3 percent in 2016, separate data from the Federal Statistics office showed on Monday.
With national inflation at 0.5 percent last year, real wages increased by 1.8 percent, the office said. This was less than the 2.4 percent in 2015 and 1.9 percent in 2014.
Orders for "Made in Germany" goods were up by 5.2 percent on the month, the Economy Ministry said. That was the biggest monthly increase since July 2014 and was far stronger than the Reuters consensus forecast for a rise of 0.5 percent.
Domestic demand jumped by 6.7 percent while foreign orders increased by 3.9 percent, with bookings from euro zone countries soaring by 10.0 percent.
The overall increase was driven by a jump in demand for capital goods for production rather than consumption of 9.7 percent, helped by strong bookings from both domestic customers and euro zone countries.
The data for November was revised down to a fall of 3.6 percent from a previously reported drop of 2.5 percent.
Still, over the full fourth quarter, industrial orders rose by 4.3 percent on the quarter, the economy ministry said. "This signals a continued upswing in the industrial sector over the winter," the ministry said.
Separate data from the VDMA industry association showed on Monday that engineering orders fell 15 percent on the year in real terms in December, driven by weaker demand from abroad.
The overall strong orders figures followed mixed data after German business morale unexpectedly fell in January, signalling a more downbeat assessment of the outlook for Europe's largest economy.
A survey among German purchasing managers showed last week that private sector growth slowed slightly in January, with weaker activity among services firms limiting overall economic expansion.
ING economist Carsten Brzeski suggested viewing the figures with caution as it is a highly volatile indicator.
"Still, against the background of Brexit and Trump, today's data suggest that the German industry could shift into a higher gear in the first quarter of 2017," he said.
Strong private consumption, increased state spending on refugees and higher construction investment helped the German economy to grow by 1.9 percent in 2016 - the strongest rate in half a decade.
For this year, the government expects an economic slowdown to 1.4 percent due to fewer work days and weaker exports.
Reporting by Michael Nienaber; Editing by Michelle Martin/Jeremy Gaunt