German industry output slumps in October, durables weigh

BERLIN (Reuters) - German output slumped in October and looked set to remain subdued throughout the fourth quarter, the economy ministry said on Friday, adding to fears of a slowdown in Europe's largest economy which could plunge the euro zone deeper into recession.

Output fell by 2.6 percent in October, a far steeper drop than the decline of 0.5 percent forecast in a Reuters poll of 37 economists. The ministry blamed weakness in durable and capital goods production for the fall.

Factories churned out 4.3 percent fewer capital goods and produced 6.2 percent fewer durable goods on a monthly basis. Activity in the construction sector slipped 5.3 percent on the month.

"The weaker order-intake of previous months is starting to show in industrial output. Production could fall notably in the fourth quarter," said economist Juergen Michels at Citigroup.

"Decent Christmas trade and robust consumer spending won't pick up the slack. The economy could shrink at the end of the year," he added.

September output data was upwardly revised slightly to a fall of 1.3 percent, from a previous decline of 1.8 percent.

Data released on Thursday showed industrial orders had risen 3.9 percent in October. The economy ministry said that despite this rise output would remain subdued.

Friday's data added to the gloom after Germany's Bundesbank cut its growth outlook for the country next year to just 0.4 percent from a previous 1.6 percent and pointed to risks of a recession as the euro zone debt crisis takes its toll.

(Reporting by Alexandra Hudson, Editing by Gareth Jones)