BNTGY Brenntag SE (PK)

FRANKFURT—A slump in German industry hit economic growth in the third quarter, as businesses were feeling the pinch from weak demand from China and other key developing economies.

Friday's release of surprisingly weak German industrial output data prompted many economists to lower their growth forecasts for the eurozone's powerhouse. But lackluster German manufacturing is also putting a big question mark over the region's growth projections for the third quarter, economists cautioned.

"Gross domestic product numbers will probably come in surprisingly weak compared to what we and others expected back in summer," said Andreas Rees, UniCredit's chief German economist in Frankfurt.

The economics ministry on Friday announced a 1.1% monthly drop in German industrial production in September, which pushed down the volume of total industrial output to last October's low. Production in the third quarter dropped 0.3% from the previous quarter.

The data don't bode well for GDP growth, economists warned. "This is clearly disappointing," said Greg Fuzesi, an economist at J.P. Morgan in London.

UniCredit earlier this week halved its German GDP growth forecast for the third quarter. It predicts quarterly growth of just 0.3%, or 1.2% on an annualized basis, compared with 0.6% growth seen just a few months ago. J.P. Morgan on Friday lowered its German growth estimate for the third quarter to 0.2%, or 0.75% on an annualized basis.

"Given the change we are making to Germany, we think that euro area GDP will have increased by an annualized quarterly rate of just 1% in the third quarter, as opposed to 1.5%," Mr. Fuzesi said.

German businesses have been increasingly feeling the pinch from slower demand from China, Russia and other developing economies. In contrast, demand from within the eurozone and the U.S. has held up fairly well, partly compensating for weak overseas demand.

Brenntag, the world's largest chemicals distributor, on Thursday cut its full-year guidance, citing a "challenging" global economic environment. Declining metals prices, meanwhile, prompted steelmaker Salzgitter to lower its earnings forecasts, after chemicals giant BASF last week cut its outlook for 2015. Kurt Bock, the BASF's chief executive said the company had "experienced a pronounced summer lull and, more importantly, no volume momentum in September."

But German economic growth won't fall off the cliff, economists said, pointing to resilient business sentiment and brisk activity in the services sector. Germany's Ifo business climate index has eased only slightly and Ifo said in late October that businesses grew even more upbeat about their trade prospects. Robust demand from both the eurozone and the U.S., coupled with healthy private consumption, will keep the German economy going, economists said. Preliminary estimates of third quarter GDP for both Germany and the eurozone are due Nov. 13.

Write to Nina Adam at nina.adam@wsj.com

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(END) Dow Jones Newswires

November 06, 2015 09:05 ET (14:05 GMT)

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