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German manufacturing orders unexpectedly increased for the first time in seven months in March, adding to signs that the deepest economic slump since World War II may be bottoming out.

Orders, adjusted for seasonal swings and inflation, rose 3.3 percent from February, the Economy Ministry in Berlin said today. Economists expected a 1 percent decline, the median of 27 forecasts in a Bloomberg survey showed. From a year earlier, orders plunged 26.7 percent in March.

German business confidence rebounded from a 26-year low last month as interest-rate cuts and government stimulus packages boosted expectations that the recession will ease later this year. Still, the government expects that the economy will shrink 6 percent this year and Bundesbank President Axel Weber said it may not return to growth before the second half of 2010.

At this point, the economy is like “a patient in intensive care, he can move his arms and legs again but cannot yet walk,” said Holger Sandte, chief European economist at WestLB Equity Markets in Dusseldorf. “We’ll see a weak recovery, but the economy is still in danger.”

The increase was driven by bulk orders, which were “strongly above average for a March,” the ministry said. “The hope for normalization is growing,” it added.

Domestic factory orders rose 1.1 percent in the month, today’s report showed. Export sales increased 5.6 percent, with euro-region orders rising 6.1 percent.

Shrinking Economy

Germany, the world’s No. 1 exporter, is struggling as global demand wanes. The International Monetary Fund last month cut its outlook for the world economy to predict a 1.3 percent contraction and Germany’s government has forecast a 19 percent plunge in foreign sales this year.

Porsche SE, the maker of the 911 sports car, reported a 34 percent annual drop in North American sales last month creditreport. Infineon Technologies AG, Europe’s second-largest maker of semiconductors, on April 30 cut its full-year sales forecast.

The slump is not confined to Germany, with the IMF forecasting a 4.2 percent contraction for the euro area.

The European Central Bank cut its benchmark interest rate by a quarter point to a record low of 1 percent today, taking its total rate reductions since early October to 3.25 percentage points.

The euro erased its decline against the dollar after the ECB decision and traded at $1.3369 as of 2.03 p.m. in Frankfurt from $1.3334 yesterday.

Stabilizing

German factory orders from outside the 16-nation euro region rose 5.1 percent in March from February, today’s report showed. Export orders for investment goods rose 9.1 percent, driven by demand from within and outside the euro area.

Other recent data also suggest the slump in Germany may be stabilizing. In addition to the rebound in business confidence last month, investor sentiment rose to the highest level in almost two years.

Still, unemployment increased for a sixth month in April, pushing the jobless rate to 8.3 percent from 8.1 percent. It will rise to 10.8 percent next year, Germany’s leading economic institutes have forecast.

The government’s car-scrap incentive and “some new foreign orders indicate that the free fall has come to an end,” said Carsten Brzeski, an economist at ING Group in Brussels. But it will “take a while before the power engine of the German economy will again run at full throttle.”

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