By Michael Nienaber
BERLIN (Reuters) - Weaker foreign demand drove a bigger-than-expected drop in German industrial orders in January, suggesting that busy factories in Europe's largest economy could shift into a lower gear in the coming months.
Christmas and New Year factory closures that extended well into January played a part, and commentators warned against reading too much into one month's data.
Contracts for German-made goods fell by 3.9 percent on the month in January after a downwardly revised leap of 3.0 percent in December, the Federal Statistics Office said on Thursday.
The reading was the weakest since January 2017 and the fall was bigger than the 1.6 percent drop predicted in a Reuters poll of analysts. Excluding big-ticket items, orders were still down 2.4 percent on the month.
"German new orders had a horrible start to the new year," ING economist Carsten Brzeski said.
He stressed that economic fundamentals remained good and order books were still filled though, adding: "German industry does not look at risk of faltering anytime soon."
The economy ministry said the overall trend in industrial orders was still pointing upwards despite the drop in January, adding that bookings were up 0.9 percent in December and January compared to the previous two months.
Industrial orders rose 8.2 percent on the year in January, the ministry said, adding that surveys are suggesting the global recovery will continue. "So German industry is likely to continue its positive development," it said.
Foreign demand fell by 4.6 percent on the month in January, driven by a decline in orders of nearly 6 percent from other euro zone countries, a breakdown of the data showed.
Orders for capital goods dropped 5 percent, demand for intermediate goods fell 3.3 percent, while manufacturers of consumer goods registered a rise in orders of 2.4 percent.
The data suggested industrial orders could post a quarterly decline at the start of 2018 for the first time in quite a while, said Alexander Krueger of Bankhaus Lampe.
While factories are likely to run at full speed for now to process their order books, the threat of protectionism is already clouding the outlook, Krueger said.
A Sentix survey showed on Monday that investor morale in the euro zone deteriorated in March due to concerns about U.S. President Donald Trump's threats to impose hefty tariffs on steel, aluminum and car imports.
The Ifo institute said at the end of February that German business confidence fell more than expected as a stronger euro was a growing concern for exporters.
"Trump's proposed trade tariffs are posing a real threat to the growth prospects (of German companies)," Krueger said.
(Reporting by Michael Nienaber; Editing by Catherine Evans)