By Maria Martinez

(Reuters) -German industrial production declined in March, although less than expected thanks to construction, data from the federal statistics office showed on Wednesday.

Industrial production fell by 0.4% compared to February, a smaller decline than the 0.6% fall predicted by analysts polled by Reuters.

“The renewed contraction in industrial production in March after two months of expansion is a reminder that the German economy is still struggling,” said Franziska Palmas, senior Europe economist at Capital Economics.

Palmas expects industrial output to rise a bit further over the course of the year but remain subdued by past standards.

The less volatile three-month on three-month comparison showed production was 1.0% higher from January to March than in the previous three months, the statistics office said.

Production increased by 1.7% in February on the month, less than the 2.1% before the revision of the data.

“The cyclical downswing has come to an end and optimism is back,” ING’s global head of macro Carsten Brzeski said. “However, the road to a substantial recovery, particularly in industry, remains long.”

Demand in manufacturing remains weak. German industrial orders fell by 0.4% month-on-month in March, on a seasonally and calendar adjusted basis, data showed on Monday.

In April, 39.5% of manufacturing companies reported a lack of orders, up from 36.9% in January, a separate survey of the Ifo Institute showed on Wednesday.

“The lack of orders is hampering economic development in Germany,” said Klaus Wohlrabe, head of surveys at Ifo.

In view of the weakness of orders, Commerzbank’s senior economist Ralph Solveen expects a decline in output in the coming months. A recovery is nevertheless forecast in the second half of the year, Solveen said.

Production in manufacturing – which excludes energy and construction – was down 0.4% on the month.

There was a 4.2% decrease on the month in energy production in March, while production in construction grew by 1.0% from the previous month, Destatis data showed.

(Reporting by Mateusz Dobrzyniewski and Maria Martinez; Editing by Rachel More and Christopher Cushing)

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