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German industry orders surge but Bundesbank cuts growth forecasts

[BERLIN] German industry orders rose far more than forecast in October and though the Bundesbank dampened the mood by slashing its growth forecasts for Europe's largest economy, its president said there were signs current weakness would soon be overcome.

Industrial orders surged by 2.5 per cent on the month in October thanks to strong domestic demand while foreign appetite was moderate, data from the Economy Ministry showed on Friday. That exceeded by far a consensus forecast for a 0.5 per cent gain and overshot the highest estimate for a 1.9 per cent increase.

But Germany's Bundesbank halved its 2015 growth forecast for Germany to 1.0 per cent and also cut its estimate for this year to 1.4 per cent from a forecast of 1.9 per cent made in June. It also trimmed its prediction for 2016 to 1.6 per cent. "However, there is reason to hope that the current sluggish phase will prove to be short-lived," Bundesbank President Jens Weidmann said in a statement, adding that opportunities abroad would likely increase again next year.

He also said that if crude oil prices remained subdued for a longer period, gross domestic product (GDP) could expand by an additional 0.1-0.2 per centage points in both 2015 and 2016.

The German economy was a bastion of growth until 2011 but has since then slowed as weak investment and sluggish foreign trade have taken their toll. It only just escaped a recession in the third quarter of this year with 0.1 per cent growth.

But economists were upbeat about the growth outlook after the orders data. Stefan Kipar, an economist at BayernLB, said the strong rise, combined with an upwardly revised 1.1 per cent increase in industry contracts in September, suggested the economy had stabilised after a sluggish summer. "There's a good chance that negative GDP growth rates can be avoided in winter too," he said.

Forward-looking sentiment indicators have improved recently, with business and investment morale both breaking long runs of declines to head north in November and consumer confidence has also picked up.