German orders plunge points to eurozone slowdown

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A steep drop in German industrial orders published on Friday rang a warning bell for the entire eurozone as the 16-nation bloc braced for weaker growth in the final months of the year.

The economy ministry said orders in the biggest European economy plummeted by 4.0 percent in September from the level in August, the sharpest fall since January 2009, with orders from eurozone partners more than 13 percent lower.

The overall fall was far bigger than a forecast decline of 0.4 percent compiled by Dow Jones Newswires and erased a revised gain of 3.5 percent in August.

"Until the early summer, German new orders had increased on a straight line, fuelling the industry-led recovery," ING senior economist Carsten Brzeski said.

"Since June, a new zig-zag pattern for new orders has emerged, signalling a new phase of the recovery," he noted.

A breakdown of the numbers showed the biggest single decline, of 20.4 percent, in eurozone orders for investment goods.

"Contrary to the previous month, only a modest number of large orders were recorded in September," a ministry statement said.

One bright spot was nonetheless seen in the two-month sliding average which is calculated to even out volatile one-off developments, and which edged up by 0.6 percent in August and September from June-July.

"The growth dynamic in industrial orders has weakened considerably as expected, following the boom in the first half," the ministry said.

It noted however that "the trend is still orientated upwards."

Germany has forecast overall growth of 3.4 percent in 2010 owing in large part to strong gains in the first six months of the year.

In Brussels meanwhile, European Union data showed that eurozone retail sales fell for the second month in a row, dropping 0.2 percent in September after an identical fall in August.

Germany recorded the biggest drop, of 2.3 percent, which "is a particular disappointement," according to Chris Williamson, chief economist at the data and research group Markit in London.

The decline demonstrated "that the consumer remains a weak link in the region's recovery," he added.

On Thursday, the eurozone purchasing managers index (PMI) compiled by Markit slumped to an eight-month low of 53.3 points, another sign that economic growth was set to weaken.

Although manufacturing output expanded further, it was offset by weaker growth at service providers, the group said.

© 2010 AFP

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