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German factory orders drop unexpectedly in March; government warns of more possible weakness

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BERLIN - German factory orders plunged unexpectedly in March as demand slumped both at home and abroad, particularly from other nations using the euro, and the government cautioned the crisis in Ukraine could contribute to further weakness.

The economy ministry said Wednesday that industrial orders dropped 2.8 per cent over February, the largest month-on-month fall since November 2012. Economists had predicted a 0.3 per cent rise, following an upwardly revised 0.9 per cent gain in February.

Domestic orders fell 0.6 per cent, while foreign orders were down 4.6 per cent, led by a 9.4 per cent drop from other countries in the 18-nation eurozone.

After bottoming out in early 2009, industrial orders in Germany — Europe's largest economy — have been showing an upward trend.

Despite the decline in March, the economy ministry said that trend remains intact, though it "could weaken somewhat."

It warned in particular that companies might show "temporary restraint in ordering activity due to current geopolitical events." The tensions over Ukraine have raised concerns among companies that Europe and the U.S. might impose sanctions on trade with Russia.

UniCredit economist Andreas Rees cautioned, however, against reading too much into the industrial orders figures.

The "strong decline is an unpleasant surprise," but the underlying data suggest volatility in big-ticket item purchases is more to blame than any other factors, he said.

"A strong positive counterreaction in April is very likely," Rees said in a research note. "The upward trend in the German manufacturing sector is intact with some transformation from solid foreign demand to stronger domestic growth forces."

Germany's economy has shown healthy growth in recent months — it is widely expected to grow about 1.9 per cent this year from last year's modest 0.4 per cent increase.

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