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German manufacturing downturn drags into final quarter

BERLIN (Reuters) - German industrial orders fell unexpectedly in October as demand at home and from outside the euro zone weakened, suggesting a manufacturing downturn will continue to hold back growth in Europe’s largest economy in the final quarter.

FILE PHOTO: An employee of German car manufacturer Porsche works on a windshield of a sports car at the Porsche factory in Stuttgart-Zuffenhausen, Germany, February 19, 2019. REUTERS/Ralph Orlowski/File Photo

Contracts for German-made goods were down 0.4% from the previous month, the Statistics Office said on Thursday. That undershot a Reuters consensus forecast for a 0.3% rise.

“The German industry is still stuck in the vale of tears,” VP Bank economist Thomas Gitzel said, adding that a growing number of companies were applying for state aid to keep well-trained staff but put them on short-time work.

The reading for September was revised up to an increase of 1.5% from a previously reported 1.3%.

The economy ministry said that industrial orders had stabilised in recent months, with business expectations also developing a bit more favourably.

“However, activity in the manufacturing industry is still weak. The manufacturing outlook for the final quarter therefore remains subdued,” it said.

Industrial orders from domestic clients fell 3.2% while demand from customers outside the euro zone dropped 4.1%, the data showed. Orders from other euro zone countries jumped 11.1%, helped by bulk orders.

Without bulk orders, overall industrial orders fell 1.4% in October.

Demand was particularly weak for capital goods such as machines and equipment, whereas orders for consumer and intermediate goods edged up, the data showed.

The German economy skirted a recession in the third quarter as consumers, exports and state spending drove a 0.1% expansion from July through September, following a 0.2% contraction in the previous three months.

The country’s export-dependent manufacturers are struggling with weaker foreign demand, tariff disputes sparked by U.S. President Donald Trump’s ‘America First’ policy and business uncertainty linked to Britain’s delayed departure from the European Union.

Gitzel also pointed to the struggling automobile industry, which he said had become an “enormous burden” for the economy as a whole.

German car companies are having trouble adjusting to stricter regulation following an emissions-cheating scandal and managing a broader shift away from combustion engines towards electric cars.

The automobile industry body VDA said on Wednesday it expected car sales to remain sluggish next year and companies to cut more job cuts as a result.

“Hopes of a stabilization of incoming orders have ... been dampened noticeably,” Commerzbank analyst Christoph Weil said.

Manufacturing is likely to slow the economy down in the coming months which means that the economy as a whole will probably only stagnate in the fourth quarter, he added.

Reporting by Michael Nienaber; Editing by John Stonestreet and Hugh Lawson

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