Euro zone orders tumble by most in almost 3 years

BRUSSELS (Reuters) - Euro zone industrial new orders slumped in September, the EU said on Wednesday, the deepest fall since December 2008 and far worse than economists had forecast, in the latest sign that Europe may be heading for a recession.

Orders in the 17 countries sharing the euro tumbled 6.4 percent in the month compared to August, well below expectations of a 2.5 percent fall, with Germany and France registering sharp contractions, the EU's Statistics Office Eurostat said.

"The scale of the deterioration is surprising," said Clemente de Lucia, an economist at BNP Paribas. "We are entering some kind of contraction in the last quarter of this year that will continue in the first quarter of next year," he said.

Orders of capital goods, a measure of investment in new machinery, fell the most in September compared to the previous month, sliding 6.8 percent and suggesting factory managers and companies made a clear call to pull back expansion plans.

On an annual basis, industrial new orders in the euro zone rose 1.6 percent in September, while economists polled by Reuters expected an 8.0 percent increase.

As the epicenter of the sovereign debt crisis has moved to Rome from Athens, some economists are predicting a deeper and longer recession than first seen. ABN Amro recently cut its euro zone gross domestic product forecast for 2012 to a contraction of 0.8 percent, from growth of 0.4 percent.

Italy's bond yields have soared to levels seen as unsustainable and the euro zone may not have the means to rescue Rome if it shut out of capital markets. Worries about Italy have spread to France, which has a deficit running at nearly 6 percent of GDP, and French yields have ballooned.

Germany witnessed one of its worst bond sales since the launch of the euro on Wednesday, adding to concerns that the debt crisis may now threaten Berlin.

"It is now very clear that this debt crisis has also affected the real economy and the real economy is now going down, for sure," said Peter Vanden Houte at ING, pointing to the 0.7-point fall in the purchasing managers' index for manufacturing in November, also released on Wednesday.

VOLATILE, BUT STILL BAD

Even though industrial orders are considered volatile by economists, their weakness in September was hard to deny.

All sectors in the Eurostat index saw declines in September and the fall in orders was sharp in Italy, where they tumbled 9.2 percent. In Spain, they slid 5.3 percent.

In Germany, the euro zone's exporting powerhouse, new orders fell 4.4 percent. That signals European manufacturing, which had powered a two-year recovery since the end of the global financial crisis in 2009, has now stalled, economists say.

Euro zone GDP did grow slightly in the third quarter, but the September new orders data erased the 1.4 percent increase in orders in August. The new orders figures were also compounded by the euro zone purchasing managers' survey in November, which suggest a 0.5-0.6 percent GDP contraction in the fourth quarter.

Falling export demand from Asia, fewer new orders, unemployment at 10 percent and the ever weaker confidence are combining to create a very difficult business environment.

Adding to that, euro zone consumer confidence, released on Tuesday, also fell sharply in November.

"Confidence in the business sector in the euro area has reached levels not seen since the great recession of 2008 and 2009," said Olivier Bizimana at Morgan Stanley.

(Additional reporting by Christopher Le Coq; editing by Ron Askew)