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German industrial output suffered its biggest fall in December since the recession-hit year of 2009, a shock drop highlighting the weakness in manufacturing that risks dragging Europe’s largest economy into contraction again.

Industrial production tumbled by 3.5 per cent on the month, undershooting expectations for a 0.2-per-cent fall, Statistics Office data showed. That was the biggest drop since January, 2009 and came after an upwardly revised 1.2-per-cent increase in November.

Germany’s export-dependent manufacturers are struggling with sluggish demand from abroad as well as business uncertainty linked to trade disputes and Britain’s decision to leave the European Union. The services sector is in better shape.

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The Ifo economic institute said on Thursday that the coronavirus could also cost Germany growth.

Germany narrowly avoided an expected slip into recession in the third quarter of last year and grew by 0.6 per cent in the full-year 2019, the weakest expansion rate since 2013.

Fourth quarter growth figures are expected next Friday.

“There are very few positive elements to find in the December industrial data,” said ING economist Carsten Brzeski. “In fact, the data has raised the risk that next week’s GDP data could bring back the R-word for the German economy.”

The output figures came a day after the release of data showing industrial orders unexpectedly plunged in December on weaker demand from other euro zone countries, suggesting there is no let-up in sight for the manufacturing sector.

Highlighting the weakness, Siemens on Wednesday reported first-quarter results that missed forecasts after a slowdown in its industrial automation business and problems in its power and gas and wind power operations.

A breakdown of Friday’s output data showed construction suffered the biggest slump – down 8.7 per cent – but manufacturing output also contracted sharply, by 2.9 per cent.

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“Germany’s auto firms have been hit by the fallout from the coronavirus, which is making it hard to source some key components,” said Andrew Kenningham at Capital Economics.

“In short, it is still too early to sound the all-clear for German industry.”

The Ifo institute’s monthly survey last week showed business morale weakening, suggesting the economy got off to a slow start in 2020.

Chancellor Angela Merkel’s ruling coalition is at odds over how to spend the federal government’s budget surplus of 13.5-billion euros. Her conservatives are calling for corporate tax cuts, while centre-left Finance Minister Olaf Scholz favours more public investment.

Separate trade figures released on Friday showed seasonally adjusted exports edged up by 0.1 per cent on the month while imports fell by 0.7 per cent in December. The slowdown in Germany comes as some of its European neighbours are also facing economic challenges, with French industrial production falling much more than expected in December as factories contended with nationwide transport strikes.

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