(Adds details, background, quotes)
By Dave Graham
BERLIN, Feb 5 (Reuters) - German industry orders posted their biggest annual decline in December since reunification as demand for manufactured goods fell away sharply for the fourth month in succession, Bundesbank data showed on Thursday.
The figures from Germany's central bank showed that, adjusted for seasonal swings, orders fell by 27.7 percent compared with December 2007, and by 6.9 percent month-on-month.
The monthly drop, led by poor foreign demand, was the second largest since Germany reunified in 1990, and the fourth big fall in a row. Orders have fallen in 12 of the last 13 months.
"This is incredible," said Juergen Michels, an economist at Citigroup in London. "Industrial orders are in freefall. That means that industrial production will drop sharply at the start of the year. Economic recovery is out of sight for now."
The consensus forecast of a Reuters poll for a monthly
decline of 2.5 percent in December.
Domestic orders fell by 4.3 percent, with foreign orders down 9.4 percent, the figures showed, suggesting industrial output data due on Friday for December may also be weak.
German exporters have been hit hard by the global downturn, and the government has forecast the economy will contract by around 2.25 percent this year, which would easily be the economy's worst performance since World War Two.
The domestic economy is suffering too. Earlier on Thursday a survey showed the construction sector contracted at its fastest pace in almost four years in January, with new orders diving.
OUTPUT CUTS
Meanwhile the port of Hamburg, Germany's biggest, said it expects business volumes to be weak in the first half of this year as the global economic downturn bites.
Many of Germany's best known firms have cut back production in recent months to compensate for flagging demand.
Earlier this week, German robotics maker Kuka AG
Government sources have told Reuters that Europe's biggest economy probably shrank by between 1.5 and 2.0 percent in the final quarter of last year -- which would be the most severe quarterly contraction since reunification.
The German economy has been in recession since last year and Unicredit economist Andreas Rees said the latest data showed the slump would continue in coming months.
"The risks are rising that overall economic activity at the beginning of this year will shrink even more heavily than in the fourth quarter. However, there are also some rays of hope, as leading indicators around the globe hit a bottom recently," he said.
Surveys of manufacturers in January pointed to sustained weakness at the outset of 2009, though the Ifo institute's closely-watched gauge of German business sentiment unexpectedly improved last month due to a pick-up in expectations.
In a statement, the Economy Ministry, which initially published the data, said manufacturers were facing tough times.
"Against this backdrop, the outlook for German industrial production remains extremely subdued," it said.
Despite the weak data, the Economy Ministry said December saw an above average volume of big ticket orders.
(Reporting by Dave Graham; editing by Chris Pizzey)