German Industry Slump Sparks Renewed Economic Growth Fears

Germany's industrial output unexpectedly dropped in October, reviving worries about its economic growth outlook as its manufacturing backbone takes a blow from global trade conflicts and disruptions in the auto sector.

Industrial output dropped 1.7% on the month against expectations for a 0.1% rise, Statistics Office figures showed on Friday. Production of capital goods slumped by 4.4% on the month, the steepest decline in more than five years.

Europe's biggest economy is going through a soft patch as its export-oriented manufacturers struggle against a backdrop of trade friction, an ailing car industry and uncertainties over Britain's planned departure from the European Union.

"Now the trepidation starts again about GDP growth in the final quarter," said Jens-Oliver Niklasch, economist at Landesbank Baden-Wuerttemberg.

German industry now expects output in the coming months to fall more slowly than was foreseen a month ago, a survey of 2,300 firms in the sector by the Ifo economic institute showed.

In its 10th successive year of growth, Germany's economy has been relying on strong consumption as exports weaken, which resulted in a second-quarter GDP contraction of 0.2%.

The economy grew by just 0.1% in the third quarter, narrowly avoiding recession, which economists usually define as two consecutive quarters of negative growth.

"Trade conflicts, global uncertainty and disruption in the automotive industry have put the entire German industry in a headlock, from which it is hard to escape," said Carsten Brzeski, economist at ING.

The automobile association VDA said on Wednesday that it expected global car sales to fall by 5% this year and that the crisis would force German companies to cut more jobs in 2020.

Many economists have been urging the government to ditch its policy of incurring no new net debt, saying it should instead borrow to finance a stimulus package.

Conservative Chancellor Angela Merkel's right-left coalition government has rejected calls from industry groups and economists for a stimulus package to put the economy firmly back on a growth trajectory.

However, the new leftist leadership at the helm of the Social Democrats, Merkel's junior coalition partner, wants more investment in schools, infrastructure and digitalisation.

The coalition parties must now decide how far they will compromise to preserve their governing alliance until a 2021 election.

"The economic weakness in industry remains" the ministry said in a statement. "However, the latest developments in new orders and business expectations indicate that a stabilising trend could emerge in the coming months."

German business morale rose in November, Ifo said late last month.