Strong domestic demand for consumer goods propelled a bigger than expected jump in German industrial orders in March, data showed on Thursday in a sign that manufacturers will support a recovery once supply and delivery bottlenecks are overcome.

The German economy, Europe’s largest, shrank by 1.7 per cent in the first quarter as restrictions to contain the coronavirus stifled private consumption and chip shortages held back production in the automobile industry.

The data published by the Federal Statistics Offices showed orders for industrial goods ‘Made in Germany’ jumped on the month by 3% in seasonally adjusted terms.

This easily beat a Reuters forecast of 1.7 per cent and came after an upwardly revised increase of 1.4 per cent in February and a rise of 0.8 per cent in January.

Domestic orders rose by 4.9 per cent in March while foreign bookings increased by 1.6 per cent. The strong increase was driven by an unusually large number of major contracts. Without this effect, orders were up by 1.6 per cent, the office said.

“The demand for German industrial goods is unbroken. This time, however, orders for big-ticket items also helped a lot,” said Alexander Krueger from Bankhaus Lampe.

“The dilemma remains that orders are distributed faster than processed,” Krueger said, pointing to the supply and delivery bottlenecks at automakers which have led to production cuts.

Looking at industrial sectors, the increase in the headline figure was mainly driven by strong demand for consumer goods which jumped by 8.5 per cent, the economy ministry said.

Bookings for intermediate goods were up by 2.8 per cent and those for capital goods rose by 2.5 per cent.

Orders were particularly high in the sectors of mechanical engineering, manufacturing of data processing equipment and electronic and optical products, the ministry said.

In a sign that manufacturers are partly overcoming supply bottlenecks with semiconductors and other industrial components, real industrial sales rose by 2 per cent on the month in calendar-adjusted terms, the statistics office said.

This points to an equally solid increase in industrial output for which data is due on Friday and economists forecast a 2.3 per cent increase.

The continued positive trend in incoming orders is laying the foundation for a solid economic recovery in the coming months, Thomas Gitzel from VP Bank said.

“The shortage of materials is slowing down production for the time being, but once the materials are available again in sufficient quantities, there will be strong catch-up effects,” Gitzel said.

The German government last week lifted its economic growth forecast for this year to 3.5 per cent from 3 per cent previously, counting on a rebound of household spending once COVID-19 restrictions are lifted in the course of the summer.

Still, the Bundesbank’s chief economist told Reuters on Friday that he expected the supply bottlenecks in German industry to worsen in the second quarter which could lead to an overall weaker recovery this year.

Meanwhile the e-cars boom will cost more jobs in Germany’s auto industry than employees will retire in the coming years, burdening the labour market with 100,000 job losses if companies don’t beef up efforts to re-skill workers, a survey showed on Thursday.

As battery-driven cars provide less assembly work than combustion engine vehicles, the shift towards e-mobility means that companies must now address the risk of miss-match unemployment and re-train employees, the Ifo institute said.

Germany’s car sector is facing an “employment fiasco” unless badly needed investments in new technologies, most notably batteries, are made, the country’s top labour leader said.

“Whoever takes the view that the loss of jobs could be fully offset is creating false hopes,” Joerg Hofmann, president of IG Metall, Germany’s most powerful union, told Reuters.

The German government has raised its growth forecast for the year to 3.5 per cent, compared with the 3 per cent growth it was expecting back in January, a source said, adding that the upward revision was justified by a stronger-than-expected fourth quarter.

The source added that the government expected Europe’s largest economy to expand by 3.6 per cent in 2022.

Germany’s leading economic institutes said earlier this month they expected the gross domestic product to grow by 3.7 per cent this year and 3.9 per cent in 2022. German business morale improved only slightly in April as a third wave of COVID-19 infections and a semiconductor shortage in the motor vehicle sector slowed a recovery in Europe’s largest economy.

Export-oriented manufacturers are currently benefiting from higher demand from China and the United States, whereas domestically-focussed services are suffering under extended restrictions to contain a third wave of COVID-19 infections.