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Germany’s industrial sector posted on Thursday its fourth straight month of decline, further reinforcing concerns that expansion in Europe’s largest economy is losing momentum.

Data from the Federal Statistics Office showed industrial production dropped 0.4 percent in December, capping a quarter that has seen a wave of downbeat data.

The gloomy output figure came after separate data released on the previous day showed last month’s industrial orders unexpectedly stumbled for the second consecutive month.

The industrial production slump adds to the possibility that the economy contracted in the fourth quarter, which would indicate a recession after domestic product growth weakened in the prior quarter, according to analysts.

The German economy, which has grown steadily for almost a decade, has been facing headwinds from global trade conflicts. The UK’s likely exit from the European Union in March without a firm deal is also dimming the outlook for German manufacturers.

A breakdown of the report showed the country’s construction segment mainly headed the December drop, as activity in the sector dropped more than 4 percent, which could not be offset by a slight increase in manufacturing output.   

The auto sector, which has slowed the economy because new emissions standards resulted in fewer vehicle registrations, recovered last month as output improved above 7 percent, the economy ministry said.

The figure for November was adjusted to a slide of 1.3 percent from the previously stated fall of 1.9 percent.

Chief Economist Thomas Gitzel stated that a positive gross domestic product (GDP) reading in the fourth quarter of 2018 now looks tight, adding that a positive (industry) reading would have reduced the chance of a negative GDP reading in the fourth quarter.   

Economic Slowdown Affecting the Whole Euro Zone

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As the possibility of a slowdown becomes more apparent, the government has cut its growth forecast for this year to 1 percent.

Industry groups and economists have also cited complacency on the economy from German Chancellor Angela Merkel as reason for the slowdown.    

Merkel have allowed families and business to have more lenient tax reductions, and enacted tax reforms that provide women and the long-term unemployed more incentives to join the workforce.

The Chancellor is also facing demands to make Germany more appealing to foreign employees to curb critical labor shortages.

Faltering growth or stagnation in Germany could take a toll on the whole euro zone, whose biggest economy acts as an indicator of the economic health of the single currency bloc.

Private consumption has been offering support on the country’s economy as exports decline, but economists believe the slowdown in manufacturing has been affecting the services industry which largely relies on the domestic market for growth.                   

The DIHK Chambers of Industry and Commerce confirmed that suspicion after it revised its 2019 growth estimate for the German economy to 0.9 percent from 1.7 percent.

Companies’ outlook is getting clouded and business expectations have significantly deteriorated in all economic sectors, according to DIHK.

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