Jan. 8 (Bloomberg) -- German manufacturingorders extended their worst decline on record in November and exports dropped by a record, pushing Europe’s largest economy toward its worst recession since the aftermath of WWII.

Orders, adjusted for seasonal swings and inflation, fell 6 percent from October, the Economy Ministry in Berlin said today. That’s after drops of 6.3 percent and 8.3 percent in the previous two months. Exports fell 10.6 percent, a separate report showed.

“The numbers are just awful and it’s going to be a terrible year for growth,” said Dominic Bryant, an economist at BNP Paribas in London, who expects the economy to shrink 3 percent this year, which would be the worst contraction since figures were compiled for the Federal Republic of Germany in 1950.

With the global economic crisis eroding demand, German companies are paring output as they grapple with a slowdown in the economies of their main trading partners. Volkswagen AG and Porsche SE have seen U.S. sales plunge, while the largest European engineering company, Siemens AG, is finding it “more ambitious” to meet its profit target for this year.

“Ironically the recession will be worse in Germany than the highly indebted countries because these are among the main export partners,” Bryant said.

Outlook Worsening

Beyond Germany, the outlook for the euro area is also worsening. European economic confidence plunged to a record low last month, a report today showed. German shipments to euro region countries, which buy more than 40 percent of the country’s foreign output, fell 12.9 percent from a year earlier.

To tackle the slump, the European Central Bank on Dec. 4 lowered its key interest rate by an unprecedented 75 basis points to 2.5 percent. As oil prices decline and demand weakens, council member Vitor Constancio said the ECB is prepared to reduce borrowing costs further to prevent inflation slowing “significantly” below its 2 percent ceiling. Euro-area inflation eased to 1.6 percent last month.

“It’s clear that the ECB cannot take a break in its easing campaign,” said Aurelio Maccario, chief euro zone economist at Unicredit MIB in Milan. “The severity of the recession and the plunge in inflation and inflation expectations suggest that the time to act is now.”

The economy of the 16 euro nations will probably shrink about 0.5 percent next year after growing 1 percent in 2008, the ECB said last month.

‘Industry Needs Help’

Adding to signs of a deepening recession in Germany, business confidence dropped to the lowest in more than a quarter century in December and manufacturing contracted for a fifth straight month. Domestic demand is unlikely to offset the decline in sales abroad. Unemployment rose for the first time in almost three years last month and November’s order slump was led by a 7.6 percent drop in home orders.

“Industry as a whole urgently needs help,” said Anton Boerner, president of Germany’s BGA wholesale and exporters group.

ThyssenKrupp, Germany’s largest steelmaker, said on Dec. 19 that it will cut working hours for 20,000 employees at its main division. Porsche is suspending production at a factory for eight days until the end of January.

Governments are also trying to counter the slump, which saw the biggest economies slide into the first simultaneous recession since World War II. German Chancellor Angela Merkel’s Cabinet in November agreed on a package of measures including construction investment and tax relief costing 32 billion euros ($43 billion), or 1.3 percent of gross domestic product, over two years. Lawmakers are considering an additional 50 billion euros.

“We’re in a heavy recession and inflation is dropping like a rock. Government measures will only help soften the slowdown,” said Alexander Krueger, an economist at Bankhaus Lampe KG in Dusseldorf. “The ECB has leeway to cut” rates further.

The central bank’s 22-member Governing Council is scheduled to hold its next meeting on monetary policy on Jan. 15 in Frankfurt.

To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net; Simone Meier in Frankfurt at smeier@bloomberg.net

Last Updated: January 8, 2009 09:36 EST