Nov. 6 (Bloomberg) -- German factory orders rose for a seventh month in September as exports helped the recovery in Europe’s largest economy to gather pace.

Orders, adjusted for seasonal swings and inflation, advanced 0.9 percent from August, when they gained a revised 2.1 percent, the Economy Ministry in Berlin said today. Export orders jumped 3.7 percent in September. Overall orders were still 13.1 percent lower than a year earlier.

The government is spending 85 billion euros ($127 billion) to haul the country out of its slump, while the global recovery is boosting foreign demand for goods from Germany, the world’s biggest exporter. The ministry said today it expects the industrial production recovery to continue in the current quarter. Daimler AG reported on Nov. 3 that U.S. sales of Mercedes-Benz brand cars jumped 21 percent in October from a year earlier.

“Both in length and strength, the recent improvement in new orders has been unprecedented in the last twenty years,” Carsten Brzeski, an economist at ING Groep NV in Brussels, wrote in a note. The “hope that the manufacturing sector can take over the baton as the economy’s main growth driver seems to become reality.”

Economists had forecast that orders would increase 1 percent in September from August, according to the median of 33 estimates in a Bloomberg News survey.

Outlook Improves

Domestic demand for manufactured goods decreased 2.3 percent in September after a 0.8 percent decline the previous month, today’s report showed. From a year earlier, they dropped 14.1 percent.

Export orders fell 12.2 percent in September from the year- earlier month, compared with a 23 percent slump in August.

The economy, which exited the recession in the second quarter, probably expanded around 0.75 percent in the third, Bundesbank President Axel Weber said on Oct. 3. Third-quarter gross domestic product figures will be published on Nov. 13.

The Economy Ministry last month raised its economic outlook, forecasting growth of about 1.2 percent in 2010. German business confidence rose to a 13-month high in October and the manufacturing industry grew for the first time in 15 months.

Stimulus Effect

Still, retail sales unexpectedly fell in September after companies shortened working hours, leaving consumers with less money to spend. Chancellor Angela Merkel said on Oct. 26 that unemployment is set to rise and the government’s stimulus spending, which included incentives to buy new cars, is necessary.

The so-called cash-for-clunkers fund nevertheless ran dry in September and the expiry of other stimulus measures next year may damp Germany’s recovery.

“Fiscal stimulus packages worldwide have had a positive influence on Germany and once the effects wear off there’s not much to replace them,” said Costa Brunner, an economist at Natixis in Frankfurt. “The end of the cash-for-clunkers scheme will certainly play a role as the automobile industry is around 27 percent of the German manufacturing sector.”

The euro’s 19 percent gain against the dollar since mid- February is also undermining exports and threatening to damp growth.

Still, the German VCI chemical makers’ industry association said on Nov. 3 that manufacturing is recovering as customers in Asia and South America increase orders. Production and sales both rose in the third quarter and companies are returning to full working hours, it said.

To contact the reporters on this story: Frances Robinson in Frankfurt at frobinson6@bloomberg.net; Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

Last Updated: November 6, 2009 07:02 EST