German exports fell in October and French industrial output stagnated, adding to signs that the euro region may slide into recession as leaders struggle to solve the sovereign debt crisis.

German exports dropped 3.6 percent from September, the Federal Statistics office in Wiesbaden said today, almost three times economists’ median forecast for a 1.3 percent decline. In France, industrial production was flat in October after falling 2.1 percent a month earlier, more than the initial 1.7 percent estimate, Paris-based statistics office Insee said.

Slowing growth in the euro area’s two largest economies may tip the 17-nation currency bloc into recession as European governments boost their rescue fund and tighten fiscal rules in the latest attempt to stamp out the debt crisis. The turmoil is hurting global growth by damping European demand for foreign goods. Chinese manufacturing contracted for the first time since 2009 last month, a report showed on Dec. 1.

“Fiscal tightening plus credit tightening and the confidence impact of the sovereign crisis point to recession” in Europe, said Sarah Hewin, senior economist at Standard Chartered Bank in London. “We’re not expecting anything as bad as the 2008-2009 downturn on the assumption the euro area will continue to muddle through.”

The Stoxx Europe 600 Index rose 1.2 percent as of 1:30 p.m. in Frankfurt after leaders meeting overnight in Brussels agreed to add 200 billion euros ($267 billion) to their crisis-fighting war-chest and tighten anti-deficit rules. The euro gained 0.5 percent to $1.3405 while Italian bonds dropped, driving the 10- year yield up 5 basis points to 6.48 percent.

ECB Cuts Forecast

The European Central Bank yesterday cut its benchmark interest rate for the second time in as many months, taking it to 1 percent, as it slashed its 2012 growth forecast to 0.3 percent from 1.3 percent.

“These revisions mainly reflect the impact on domestic demand of weaker confidence and worsening financing conditions, stemming from the heightened uncertainty related to the sovereign debt crisis, as well as downward revisions of foreign demand,” ECB President Mario Draghi told reporters in Frankfurt. The ECB predicted euro-area inflation will slow to 2 percent next year and 1.5 percent in 2013 from 3 percent today as growth weakens.

German inflation slowed to 2.8 percent in November from 2.9 percent in October.

“Inflation pressure is easing because of the problems in the euro zone,” said Arnd Schaefer, an economist at WestLB in Dusseldorf, Germany. “We’ll see a clear drop” in inflation rates next year.

‘More Cautious’

The Bundesbank on Nov. 21 cut its 2012 German growth projection to between 0.5 percent and 1 percent, saying a “pronounced” period of weakness can’t be ruled out. French business confidence fell to a two-year low in November, suggesting the economy won’t expand in the fourth quarter, the Bank of France said yesterday.

Volkswagen AG, Europe’s largest carmaker, said on Dec. 6 that it’s “more cautious” about the outlook and is “preparing carefully for all possible situations.”

“The readiness to order is weakening in our main trading partners in the euro zone,” said Jens Kramer, an economist at NordLB in Hanover, Germany. “Customers in emerging economies are only partially making up for it.”

Germany’s trade surplus narrowed to 11.6 billion euros in October from 17.3 billion euros in September.

U.K. Deficit

The U.K. goods-trade deficit improved in October as exports to non-European Union nations soared to a record 12.6 billion pounds ($19.7 billion), the Office for National Statistics said today in London.

A report at 8:30 a.m. in Washington may show the U.S. trade deficit widened in October as a strengthening economy helped drive up the nation’s import bill, while exports cooled from a record high, according to a Bloomberg News survey of economists.

Confidence among U.S. consumers probably rose in December to the highest level in six months, another survey shows. The Thomson Reuters/University of Michigan index of consumer sentiment increased to 65.8 from 64.1 in November, according to the median of 73 forecasts. That report is due at 9:55 a.m. New York time.

China’s inflation rate reached a 14-month low of 4.2 percent in November, the country’s statistics bureau said today, and industrial production rose less than economists forecast, bolstering the case for more stimulus measures to shore up growth in the world’s second-largest economy.