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German machinery industry cuts 2014 growth forecast sharply as Russia tensions cast shadow

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BERLIN - A group representing Germany's machinery industry revised its output forecast sharply lower on Thursday, pointing to the effects of political tension with Russia and the wider uncertainty it has caused.

The VDMA group said it now expects production of machinery to grow by about 1 per cent this year, rather than the 3 per cent it predicted in October.

"The conflict with Russia is not just leaving tracks in bilateral trade — it is generally hindering demand in important sales marketrs for our industry," VDMA chief economist Ralph Wiechers said in a statement.

"Economic sentiment has darkened in many countries; as a result, orders cannot develop the momentum that would be needed" for 3 per cent growth this year, he added, though the industry can still hope to achieve a production record of 199 billion euros ($267 billion).

Russia's economy has weakened due to uncertainty over the potential damage from Western sanctions. The U.S. and European Union this week approved tougher penalties aimed at hurting Russia's economy, punishing alleged Russian support for Ukrainian rebels.

"We know that we could suffer economically ourselves — we know that our trade with Russia is not overly large, but it does have some significance," Vice Chancellor Sigmar Gabriel, who is also Germany's economy minister, said on Wednesday. Germany has Europe's biggest economy.

Russia was only Germany's 11th-biggest trading partner last year, well behind the top four of France, the Netherlands, China and the U.S. German exports totalled 36.1 billion euros, 3.3 per cent of the country's total exports, with machinery and vehicles among the main goods sold.

As for the potential damage, Gernot Erler, the government's co-ordinator for co-operation with Russia, told n-tv television that some estimates see sales to Russia dropping by 4 billion to 6 billion euros.

The German economy is generally in robust shape. Official figures Thursday showed the country's unadjusted jobless rate edging up to 6.6 per cent in July from 6.5 per cent the previous month for purely seasonal reasons, while the underlying trend remained positive.

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