(Bloomberg) -- German factory orders unexpectedly fell in October, highlighting how manufacturing in Europe’s largest economy remains stuck in a rut.  

Wednesday’s data shows a 3.7% decrease in demand — defying analysts who had predicted a 0.2% gain. September’s advance, however, was revised up to 0.7%.

The slump was driven by a 13.5% drop in machinery and equipment that couldn’t offset a 20.2% jump in new orders in the manufacture of transport equipment including aircraft, ships and trains, the statistics agency said. 

The outcome suggests that the prospective pickup in Germany’s outsized industrial base signaled by survey data is struggling to materialize in the aftermath of the energy crisis and weak global demand, further weighing down the economy.

Output shrank 0.1% in the three months through September and economists predict another contraction of the same size in the current quarter, putting Germany on track to be the only major economy with a recession. Budget chaos in Berlin after a shock court judgment risks further overshadowing the recovery. 

Recent surveys have pointed to stabilization. The Ifo institute’s business outlook last month reached a six-month high. A survey of purchasing managers highlighted “considerable weakness,” though easing conditions support a return to growth. 

Germany’s weakness has started to spill over into the labor market. After proving surprisingly resilient, the unemployment rate hit a 2 1/2 year high in November. 

“The economic slump is leaving its mark,” said Andrea Nahles, head of the Federal Labor Agency. 

Tight monetary conditions are adding to the headwinds. While European Central Bank officials have insisted that another hike is possible, the marked slowdown of euro-area inflation prompted ECB member Isabel Schnabel to call another such move “rather unlikely.” Investors have ramped up bets on a cut as early as March. 

Still, inflation risks are “skewed to the upside,” Bundesbank President Joachim Nagel said last month. “It seems to me to be far too early to even think about a possible interest-rate cut,” he said. 

--With assistance from Joel Rinneby, Kristian Siedenburg and Nicholas Comfort.

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