Debt crisis: German economic data is a "catestrophe" say economists

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German factory orders recorded their biggest drop for a year according to figures that lead a raft of economic data from Spain, France and Italy, that underscored the advancing debt crisis.

The German finance ministry said factory orders were down 3.3pc in September from the month before shocking economists who had forecast a 0.4pc drop, according to Bloomberg poll.

Taken with figures showing German business confidence has fallen to the lowest in two-and-a-half years, the data was described as “a catastrophe and very bad news” by Thomas Harjes, European economist at Barclays (LSE: BARC.L - news) in Frankfurt. “We have a huge problem in the rest of the euro area that now seems to be reaching Germany and its labour market,” he said. “For the coming quarters, the economic outlook is quite gloomy.”

Fresh data from Markit Economics showed that the eurozone’s combined output of the manufacturing and services sector fell at the fastest pace since June 2009. The composite PMI for the 17 member states fell to 45.7 in October, down from 46.1 in September. It was the nineth consecutive monthly fall.

Politicians continued to argue over the rescue mechanisms. Germany’s “wiseman” panel of economic advisers said the European Central Bank’s radical bond buying programme - the prospect of which has underpinned the markets since the summer - should only be used in an emergency and should not be relied upon as a permanent method for economic stabilisation.

Spain is braced for the European Commission to axe its forecast growth for the country after El Pais obtained a draft of the predictions. According to the Spanish newspaper, the EC, which is due to publish figures tomorrow has changed its forecast for 2013 GDP from 0.5pc to 1.5pc.

Meanwhile, Spain’s services sector activity dropped for the 16th month in a row, according to fresh data from Markit. In France, the services sector saw the sharpest fall in business activity for a year in October. Jack Kennedy, senior economist at Markit and author of the France Services PMI, said: “Another weak performance from the French service sector, combined with a further steep fall in manufacturing output, left overall business activity down considerably in October. The pace of contraction in private sector output during the last two months has been the sharpest since the post-Lehmans slump in early 2009.”

In Italy, services sector activity was at its highest level in October for more than a year with output, new work and employment recording a fall but at a slower rate than previous months.