* Exports rise less than expected in August
* German BGA trade group slashes full-year forecast forexports
* Industrial orders dip 0.3 percent on lower foreign orders
* Data adds to picture of domestic demand-driven economy
By Sarah Marsh and Michelle Martin
BERLIN, Oct 8 (Reuters) - German exports rose less thanhoped in August as foreign industry orders fell, adding to signsthat domestic demand rather than trade activity will drivemodest growth in Europe's leading economy this year.
Sales of goods and services abroad gained just 1.0 percent,Federal Statistics Office data showed on Tuesday, prompting aGerman trade group to slash its forecast for full-year exportgrowth.
"We can't achieve 3 percent growth anymore. We now expect... growth of less than one percent," Anton Boerner, thepresident of the BGA trade association, told Reuters, citingweakness in a slew of foreign markets.
Exports have been the cornerstone of the German economy inrecent decades.
But Tuesday's news strengthened expectations that domesticdemand, rather than trade, will drive growth this year, helpedby a strong labour market, solid wage hikes and favourablefinancing conditions - good news for Germany's euro zoneneighbours.
That picture was reinforced by economy ministry data showingindustrial orders dipped 0.3 percent in August from July, alsoweaker than expected and driven by a 2.1 percent fall in foreignorders while domestic orders rose 2.2 percent.
The ministry said the sharp rise in German demand forcapital goods suggested investment activity, which has beenweighing on growth, was reviving.
The 1.0 percent rise in exports - outpacing an even moremeagre 0.4 percent gain in imports - missed the consensusforecast of 1.5 percent in a Reuters poll. Exports hadunexpectedly fallen in July.
"The (trade) data suggest that the recovery continues, butthere is not that much momentum," said Holger Sandte at Nordea."It confirmed effectively that foreign trade will not providemuch of a boost, unlike private consumption."
Germany's economy, which steamed ahead during the earlyyears of the euro zone crisis, weakened last year but bouncedback in the second quarter of 2013. Economists generally expectslower but solid growth in the July-September period.
WEAKNESS BEYOND EUROPE TOO
Christian Schulz at Berenberg Bank noted that while August'sexport figures showed a pickup, data for the first months of theyear showed that exports were lower than in 2012.
"Especially weak were exports to the euro zone, and this iswhere you see the impact of the recession," he said.
A breakdown of Tuesday's unadjusted data showed shipmentsto the euro zone, where Germany sends 40 percent of exports,dropping 4.1 percent on the year in August. They were down 3.1percent on the year in the first eight months of 2013.
Germany continues to outpace peers within the currency bloc,which is struggling with its debt crisis. Earlier on Tuesday,the Bank of France cut its forecast for third quarter growth to0.1 percent, while figures showed Spain's industrial output fellfor the 24th straight month.
But exports to outside Europe were down even more in Auguston the year, dropping 7.2 percent, underscoring how sluggishglobal trade has failed this year to compensate for weak demandfrom the euro zone.
"Global trade remains off-colour, which is putting thebrakes on German exports," said Thomas Gitzel at VP Bank. "Theoutlook for the coming months is much more promising. Importantfreight indicators have risen considerably."
Germany's BDI industry group last month slashed its forecastfor export growth to between 1.5 and 2 percent from a previousestimate of 3.5 percent due to weakness in emerging markets.
The BDI said that while there were signs that the Europeaneconomy was recovering and growth in the United States wasstronger than expected, this was not sufficient to offset thecurrent weakness of emerging markets.
Tuesday's data showing imports down 1.4 percent on the yearin the first eight months of 2013 suggests that domestic demandmight not provide as much of a boost to Germany's neighbours ashoped for nor contribute much to reducing euro zone imbalances.
The trade surplus widened more than expected in August to15.6 billion euros from an upwardly revised 15 billion euros.
Imbalance between the euro zone's two top economies mayhowever be shrinking.
France's Trade Minister Nicole Bricq said the trade deficitin August had narrowed slightly to 4.9 billion euros from theprevious month, describing the rise as a positive trend thatwould carry through to year-end.
- Europe News