German industrial production unexpectedly dropped in October as a recession in the euro area and weaker global growth damped demand.

Production fell 2.6 percent from September, when it declined 1.3 percent, the Economy Ministry in Berlin said Friday. Economists forecast that output would remain unchanged, according to the median of 42 estimates in a Bloomberg News survey. From a year earlier, production fell 3.7 percent when adjusted for working days.

Germany’s economy, Europe’s largest, will contract in the fourth quarter and stagnate in the first three months of next year due to a recession in the euro area and slower global growth, the Bundesbank said Friday. Still, business confidence unexpectedly rose last month and the Economy Ministry said Thursday that factory orders, an indicator for future production, jumped 3.9 percent in October.

“Companies’ backlog of orders is receding and yesterday’s data aren’t enough to signal a trend reversal,” said Ulrike Rondorf, an economist at Commerzbank AG in Frankfurt. “Companies are postponing investments in response to the crisis and that will stay with us for a while, but I’m optimistic that the slumbering German economy will wake up in the second half of next year.”

Manufacturing output declined 2.4 percent from September, today’s report shows. Production of investment goods slumped 4.3 percent, basic goods output was down 1.1 percent and consumer goods production fell 0.9 percent. Energy output dropped 3.2 percent and construction activity plunged 5.3 percent.

‘Subdued Production’

“Despite the increase in factory orders in October, the overall development points to subdued production in manufacturing and construction for the time being,” the ministry said in a statement. It revised the decline in production in September up from an initially reported 1.8 percent drop.

The Frankfurt-based Bundesbank today cut its 2013 growth forecast to 0.4 percent from 1.6 percent, citing a “severe adjustment recession” in parts of the euro area and a global slowdown.

“There’s reasonable hope that the phase of economic weakness won’t last too long and Germany will return to growth,” it said. The Bundesbank predicted expansions of 0.7 percent this year and 1.9 percent in 2014.

Germany’s Schaeffler AG, the roller-bearing maker that’s the biggest investor in car-parts manufacturer Continental AG, lowered its 2012 sales forecast on Nov. 20 because of weaker demand in Europe and Asia.

Still, Beiersdorf AG yesterday raised its full-year sales forecast for the second time in little more than a month as the maker of Nivea skin cream said revenue at its consumer business would grow more quickly than anticipated. Sales will rise “well over” 4 percent this year, the Hamburg-based company said.

“The recovery will take one step at a time but we are optimistic that industrial production will contribute to growth again next year,” said Thomas Harjes, senior European economist at Barclays in Frankfurt. “Yesterday’s data were a ray of hope and early indicators are pointing in the right direction.”