GERMAN industrial output fell 1.8 percent in October, mainly due to weaker production of machinery and cars, preliminary data showed yesterday.

The fall followed a healthy 3.1 percent increase in September, revised up from an initial estimate of 2.7 percent, the Economy Ministry said. Economists had expected a 1 percent increase in October, but portrayed the drop as a temporary setback.

It was led by a 3.5 percent decline in production of so-called investment goods such as machinery. The ministry said machinery production was down 7.6 percent, while production of cars and car parts fell by 3.3 percent.

Despite the overall drop in October, "the trend in industrial production is still clearly upward," the Economy Ministry said, noting the previous month's sharp gains.

The data came a day after the ministry reported that German industrial orders declined by 2.1 percent in October, also defying economists' expectations of a rise.

The weakness "largely reflects the waning effect from fiscal measures such as car-scrappage schemes," said Frederik Ducrozet, an economist at Calyon Capital Markets Research. Germany's car-scrapping bonus plan ended in early September.

However, the overall picture is improving and "demand from abroad remains firm," Ducrozet wrote.

He predicted a recovery of both industrial orders and production in November and quarter-on-quarter gross domestic product growth of 0.7 percent this current quarter - slowing to about 0.3 percent in next year's first quarter.