UPDATE 2-German trade, industry data point to economy shrinking
* Imports unexpectedly drop, exports also down sharply
* Industry orders fall more than expected in Nov
* Adds to signs economy contracted in Q4
* Economists see German recovery during 2013
BERLIN, Jan 8 (Reuters) - More evidence of sliding German exports and industry orders on Tuesday compounded concerns that the euro zone crisis may have battered the region's largest economy into contraction at the end of last year.
German imports and exports slid in November, narrowing the trade surplus, and industry orders fell more than expected.
Imports slid 3.7 percent, while exports fell 3.4 percent, data from the Federal Statistics Office showed on Tuesday. Economists polled by Reuters had expected imports to increase by 0.4 percent and shipments abroad to drop 0.5 percent.
Seasonally-adjusted industrial orders fell 1.8 percent in November, due mainly to a sharp fall in demand from non-euro zone countries. That was below a 1.4 percent drop forecast by a Reuters poll of 29 economists.
Germany has served as a pillar of regional strength through the three-year euro zone debt crisis but the economy slowed in the third quarter of last year and economists expect it to have contracted in the last quarter.
Although many see Germany escaping a recession and staging a steady improvement this year, Tuesday's data prompted some economists to predict a bumpy road.
"With a pick-up of global demand, exports could quickly return as the reliable growth driver. However, (the) latest new order data illustrate that the way out of contraction will not necessarily be a straight upward-sloped line," said Carsten Brzeski, senior economist at ING.
Germany is unlikely to join euro zone stragglers, he added, but "could end up humming the 'things will get worse before they get better' tune still for some time."
TRADE SURPLUS NARROWS
The seasonally-adjusted trade surplus narrowed more than expected to 14.6 billion euros from a downwardly revised 14.9 billion in October. The consensus forecast in a Reuters poll was for it to narrow slightly to 15.0 billion euros.
Weakness in the European Union, where Germany sells roughly 60 percent of its exported goods, is weighing on exports.
Sovereign debt crises have driven most of its partners to raise taxes and cut spending, weakening appetite for German goods, although demand from emerging markets has gone some way to compensating for that.
A breakdown of the German trade data on an unadjusted basis showed exports to the euro zone slumped 5.7 percent on the year, even as exports to countries outside Europe rose 5.6 percent.
The drop in imports raises questions about the ability of German consumers and companies to prop up growth during the euro zone crisis, as many had hoped, with unemployment on the rise and consumer morale deteriorating.
Nonetheless, unemployment is close to a 20-year low and wages are rising for the first time in years. Purchasing managers' reports showed the private sector expanded for the first time in eight months in December, while the Ifo index showed morale at German businesses rising in November and December.
The Economy Ministry played down the decline in manufacturing orders given strong October figures.
"Overall, demand seems to be stabilising. The slight improvement in sentiment indicators also points to this," said the ministry in a statement.
Providing some reassurance about domestic demand, bookings from within Germany increased by 1.3 percent.
However, foreign orders fell by 4.1 percent. While bookings from the euro zone inched up 0.2 percent, contracts from countries outside the currency union slumped by 6.5 percent after an 8 percent rise in October.
"Demand for capital goods remains low in view of the weak economic environment in Europe, where there is significant overcapacity in many places," said Bernd Hartmann, head of investment research at VP Bank.