Ecomomists have warned that the German economy will make a weak start to the New Year after an unexpectedly sharp drop in industrial output.

German industrial production dropped by 2.1 per cent in October, far greater than expected by economists. They blamed worries over a possible US-led war with Iraq and overdue structural reform of the German economy for the poor showing.

The German government blamed the season and an unusually high number of holidays for the poor data.

"The data are extremely bad. The calendar can explain part but not all of this," said Mr Bernd Weidensteiner, an analyst at the DZ bank. "The recovery keeps slipping ever further back. Any recovery before next summer is unlikely."

Somewhat more optimistic was Mr Rainer Guntermann of Dresdner Kleinwort Wasserstein.

"The economy has started weak into the fourth quarter and the best we can hope is better in the next quarter," he said, adding that it was still likely that Germany would avoid recession. The poor production data left Citigroup in no doubt about the German economy's future prospects.

"The German economy will shrink in the first quarter of next year. We expect a GDP of minus 0.1 per cent and a slight increase in the second quarter," said Mr Jürgen Michels, a London-based analyst.

The worst drop in production was in the energy production market, which experienced a 2.9 per cent drop.

Yesterday's poor production data follow a slew of poor economic data last week and a sharp rise in the unemployment rate to near 10 per cent.

The closely watched Ifo business index predicts little improvement in the German economy until the late spring.