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Germany's output down in October

Wednesday, October 24 09:01:01

Germany's private sector shrank for the sixth month running in October as factory order books thinned and demand for exports weakened, surveys showed, suggesting Europe's largest economy entered a recession in the second half of 2012. Markit's composite Purchasing Managers Index (PMI), measuring activity in both manufacturing and services, dipped to 48.1 in October from 49.2 the previous month, a flash estimate showed on Wednesday, remaining below the 50 mark that separates growth from contraction. The reading adds to the gloom in Germany, where the government has slashed its growth forecast for next year, industrial orders have fallen and unemployment has risen, though investor morale has picked up and exports have climbed.

Markit chief economist Chris Williamson said data from the PMI surveys suggested gross domestic product (GDP) in Germany, Europe's growth engine and paymaster, contracted 0.3 percent in the third quarter and 0.2 percent in the fourth, which would put the country in recession, defined as two consecutive quarters of contraction. "Companies are struggling now, particularly those in the manufacturing sector as they're reeling from very weak demand in overseas markets," Williamson said in a telephone interview. "Asian investment goods demand is collapsing, auto demand in the euro zone is extremely weak and there's a general trend towards cost-cutting globally where firms are de-stocking, so on top of consumption being weak the business sector is weakening."

For a long time Germany seemed to escape the euro zone debt and financial crisis relatively unscathed but growth slowed to 0.3 percent in the second quarter from 0.5 percent in the first as firms postponed investments due to concerns about the 17-nation bloc's troubles. Firms are feeling the pinch, with German automotive cable and wiring supplier Leoni AG warning a weak car market would push its 2012 revenue and profit targets below expectations while loss-making Air Berlin is launching another savings programme.

A PMI index tracking the manufacturing sector fell to 45.7 in October from 47.4 the previous month, coming in well below the consensus forecast in a Reuters poll for a reading of 48.0, as factories churned out fewer goods. Backlogs of work declined as manufacturers tried to compensate for a decline in new business for a 16th straight month as well as the second-fastest decline in export orders since April 2009 by completing work already in hand. ( C) Reuters