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UPDATE 3-German exports surge, economy seen slowing

(Adds industrial production, euro zone Sentix index, graphics)

By Michelle Martin

BERLIN, Oct 8 (Reuters) - Germany's trade surplus hit its highest level in five years in August after a surprise jump in exports while output dipped only slightly, highlighting the economy's resilience to the euro zone crisis, although economists see a slowdown ahead.

The better-than-expected trade figures came after a string of disappointing data from Europe's economic powerhouse, where business sentiment and industrial orders have slipped, the private sector has contracted, and unemployment has risen.

Seasonally adjusted exports jumped 2.4 percent month-on-month, far outperforming expectations for a drop of 0.5 percent and beating even the highest forecast in a Reuters poll for a 0.5 percent rise.

The export outlook is clouded, however, with recession deepening in the euro zone and further signals on Monday that China and other emerging Asian economies - key markets for Germany's high-value manufacturers - are slowing. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

GRAPHICS ON GERMANY'S ECONOMY AND EURO ZONE SENTIMENT

Germany's trade balance:

German industrial production:

Euro zone Sentix index:

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Separate data published on Monday showed German industrial output edged down in August due to a weaker construction sector, though the Economy Ministry said the trend in production continued to be "quite stable".

"Today's data illustrate the relative strength of the German economy," said Carsten Brzeski, a senior economist at ING.

"However, the data also give the impression that German industry is in the middle of a clearance sale. A mix of surging exports, dropping orders and declining industrial production does not bode well for the future."

The jump in exports boosted the seasonally-adjusted trade surplus to 18.3 billion euros, its widest since September 2007, from an upwardly revised 16.3 billion euros in July. It came in well above the consensus forecast for it to narrow to 15.3 billion euros.

Imports inched up a mere 0.3 percent, raising questions about the level of domestic demand in Germany, which many economists had expected would prop up growth during the euro zone crisis and a global economic slowdown.

CUSHION

For a long time Germany's economy seemed impervious to the euro zone's troubles but growth slowed to 0.3 percent in the second quarter from 0.5 percent in the first as firms held back on investments due to uncertainty in the 17-nation bloc.

Many economists now predict a German contraction in the third and possibly fourth quarters, although they said Monday's trade data would help cushion the slowdown in the third quarter.

"It is incredible how German exports are winning in such a tough environment," said Andreas Scheuerle at DekaBank.

"The strongest areas of growth recently came from Asia and Europe outside the euro zone. The data should influence Germany's economic output positively in the third quarter."

In further good news, euro zone sentiment improved for the second consecutive month in October on the back of monetary easing from central banks and helped also by the German constitutional court's approval of the euro zone's new bailout fund, Sentix research group said on Monday.

But the World Bank cut its economic growth forecasts for the East Asia and Pacific region on Monday and said there was a risk China's slowdown could worsen and last longer than many expect.

Meanwhile, in a sign of continued jitters over the euro zone crisis, investors effectively paid the German government in a debt auction on Monday to store their cash in six-month bills, opting for safety over returns.

A breakdown of the trade data showed that imports from the euro zone climbed by 1.1 percent on the year in August, compared with a more muted 0.4 percent overall year-on-year rise in imports and a 0.4 percent drop in shipments to non-euro zone countries in the European Union.

The data also showed that Germany found it harder to find buyers for its goods in the euro zone in August compared with a year ago, with shipments to countries in the troubled bloc down some 3.1 percent as several governments implement harsh austerity measures.

RECESSION AHEAD?

Economists warned against reading too much into the dip in production in August given that the figures fluctuate strongly from month to month.

"August's small fall in German industrial production suggests that the economy probably continued to expand in the third quarter," said Jennifer McKeown, Senior European Economist at Capital Economics.

But the deepening recession in much of the euro zone and weak German domestic demand point to gloom ahead, she added.

"While Germany is faring relatively well for now, we suspect that it will slip back into recession around the turn of the year," McKeown said.

Activity in the construction sector fell by 2.8 percent and factories churned out 1.3 percent fewer intermediate goods, dragging overall output down. Energy output, which rose by 1.5 percent, was the main bright spot.

Industrial output remains relatively robust in Germany compared with its struggling euro zone peers such as Spain, where production fell by 3.2 percent year-on-year in August, marking the 12th straight month of slowing production.

(Additional reporting by Stephen Brown; Editing by Gareth Jones and Catherine Evans)

((MichelleHannah.Martin@thomsonreuters.com)(+49 30 2888 5223))

Keywords: GERMANY ECONOMY/