German economic growth contracts

http://www.sxc.hu/

Berlin - A plunge in exports drove a contraction in German gross domestic product (GDP) in the fourth quarter, offsetting support from domestic demand, and highlighting the vulnerability of Europe's largest economy to weakness in its euro zone trading partners.

Seasonally adjusted data from the Federal Statistics Office confirmed an earlier flash estimate showing Germany GDP shrank by 0.6 percent in the last three months of 2012 versus the previous quarter.

That was the biggest fall since the economy shrank by 4.1 percent at the start of 2009 and only the second contraction since the 2008/09 recession. Foreign trade deducted 0.8 percentage points from GDP while domestic demand added 0.2 percentage points.

“The data from the fourth quarter is relatively bad. That was a one-off,” said Ulrike Kastens at Sal. Oppenheim.

“For the current quarter we expect to see growth again. Exports will probably revive and domestic demand will develop stably.”

Most economists say the German economy is on the road to recovery again and expect it to return to growth in the first quarter, thereby avoiding the second consecutive quarter of contraction that would put the country in a technical recession.

But while sentiment indicators from Germany now point to a solid first-quarter German rebound, the hard data suggest a milder recovery after the dismal fourth quarter.

The most recent data for exports, industrial orders and output point to only a slight uptick.

The Ifo index, due out at 11:00 SA time, is expected to show that morale among German businesses has improved for the fourth month running this month, boding well for future investments.

TRADE FALLS

Friday's breakdown of GDP data showed exports dropped by 2.0 percent in the fourth quarter while imports fell by 0.6 percent, boding ill for struggling euro zone states which had hoped to offload more of their goods on Germany, where rising wages, high employment and moderate inflation have boosted domestic demand.

Private consumption rose by 0.1 percent on the quarter and public consumption was up by 0.4 percent.

Investment in equipment has been falling for more than a year now and dropped by 2.0 percent in the fourth quarter as firms spent less on machines, tools and vehicles, the Statistics Office said.

Many German companies are cutting costs, with steelmaker ThyssenKrupp recently saying it wants to cut 500 million euros ($669.5 million) in costs over the next three years at its European steel operations.

Germany's economy nonetheless remains in good shape compared to struggling euro zone peers like Greece and Italy, where gross domestic product shrank by 6.0 percent and 0.9 percent respectively in the fourth quarter.

Surveys released this week have shown morale among German analysts and investors climbing to its highest level in nearly three years this month and private sector activity increasing for a third straight month.

Germany grew by a post-reunification record of 4.2 percent in 2010 and by some 3 percent in 2011 but growth slowed to 0.7 percent last year as exports suffered due to sagging demand in the euro zone and firms cutting back on investments. - Reuters