UPDATE 2-German economy faces setback in Q4 - Bundesbank

(Adds economy ministry report, banks' association)

BERLIN, Nov 20 (Reuters) - The German economy faces a further setback in the final quarter of this year after falling into recession in the July-September period, the Bundesbank said on Thursday.

"A noticeable setback looms for the final quarter," the German central bank said in its November monthly report.

The global financial crisis had cast a shadow over economic activity in many states in Germany, Europe's largest economy.

"The resulting weakness in demand for important business regions means the German economy cannot escape a noticeable setback in the coming months," the Bundesbank added.

Germany fell into recession in the third quarter when its economy shrank by a much sharper than expected 0.5 percent. A top economy ministry official has also said the outlook for the final three months of 2008 is little better.

Looking ahead to next year, Germany's commercial banks' association (BdB) said it expected the economy to stagnate in 2009, revising down its previous forecast for economic growth of around 0.5 percent.

The president of the German BDI industry association said there could be a pick-up later next year.

"It's very difficult right now to give a serious forecast for German industry as a whole, because we are so connected to the European and global economies," Juergen Thumann told Reuters on the margins of a conference in Frankfurt.

"I assume, however, that we will start to see an improvement around the middle of next year," he added.

The Economy Ministry said a downtrend in the global economy had made Germany's economic outlook bleaker.

"As a result, the outlook for the German economy has clouded over noticeably," the ministry said in a report on the economic situation in Germany in November.

Forward-looking indicators offered no sign of change in the economic trend in the coming months, it added.

The euro's depreciation was helping keep exports price-competitive, but weakened global demand made Germany's export engine -- a key driver of growth in recent years -- show no sign of boosting the economy.

"Faced with the clouded outlook for the global economy, foreign trade shows no signs of providing the German economy with growth impulses," the ministry added. (Additional reporting by Jonathan Gould in Frankfurt) (Writing by Paul Carrel, editing by Ron Askew)