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Slump in German mfg orders set to fan recession fears

Frankfurt

GERMAN factory orders unexpectedly dropped for a second month in December, adding to signs that Europe's largest economy is facing a more protracted loss in momentum.

The 1.6 per cent decline, the steepest in six months, may feed speculation that the Germany, once Europe's major growth engine, contracted in the final quarter of 2018.

Since the statistics office predicted a "slight" increase in gross domestic product, data have painted a more downbeat picture, and Deutsche Bank argued on Tuesday that the German economy was drifting toward recession amid deteriorating business sentiment.

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Even though bulk orders were below average in December, the slump still "suggests that the weak phase in industry will continue for now", the Economy Ministry in Berlin said. "The latest sentiment indicators also point to muted momentum at the start of the year."

Chiefly responsible for the latest drop was weak demand for investment goods from outside the 19-nation euro area. Orders were down 7 per cent from a year earlier, the most since 2012.

The report also held some slightly encouraging news. Orders rose 0.3 per cent in the fourth quarter, helped by demand for investment goods. With car manufacturers making progress in adapting to new emissions tests, demand in that segment was up 10.2 per cent.

A report by IHS Markit showed that German manufacturing shrank for the first time in four years at the start of 2019. That suggests the economy will contract this quarter, according to Deutsche Bank economists. BLOOMBERG