Eva Kuehnen and Sakari Suoninen Wiesbaden, Germany

The German economy was hit hard by the euro zone crisis in the final quarter of last year, shrinking more than at any point in nearly three years as traditionally strong exports and investment slowed, the Statistics Office said yesterday.

Economists expect Germany to bounce back after forecasts for weak growth in the first quarter but Europe’s largest economy will be less of a pillar of support for the rest of the currency bloc, where many of its peers are deep in recession.

“The German economy might not be an island of happiness any longer, but it remains at least an island of growth in a still recessionary euro zone sea,” said ING economist Carsten Brzeski.

Gross domestic product (GDP) shrank by 0.5 percent in the final three months of last year, the worst quarterly performance since Germany fell into a recession during the global financial crisis in 2008/09 and only the second contraction since it ended.

The parlous fourth quarter pushed overall growth for the year down to 0.7 percent, a sharp slowdown from the 3 percent registered in 2011 and a post-reunification record of 4.2 percent in 2010. The 2012 figure was a tad below a Reuters consensus forecast for growth of 0.8 percent.

The government is due to publish an estimate for 2013 growth today. An official from the Economy Ministry said growth would be 0.4 percent this year, less than half the existing forecast of 1 percent.

So far unemployment remains low and wages are likely to rise again this year, but if ordinary Germans were to feel the pinch of the euro crisis in an election year, it could hurt Chancellor Angela Merkel’s hopes for a third term.

As the economy slowed in the second half of 2012, consumers have already lost some will to spend. Household spending grew 0.8 percent in 2012, down from 1.7 percent in 2011, and consumer sentiment dropped to its lowest level in a year going into January.

German exports and imports slid in November and industry orders fell more than expected – confirming the weak end to the year, although more recent survey evidence suggests a moderately better start to 2013.

For the year, export growth slowed to 4.1 percent from 7.8 percent in 2011. Equipment investment fell by 4.4 percent.

“In the previous two years, GDP growth had been much larger, but that was due to a catching-up process after the worldwide economic crisis of 2009,” said Roderich Egeler of the Statistics Office, adding that the economy had been robust.

Andreas Scheuerle of Dekabank said the 2012 figure was “disappointing” at a first glance. “But if you take the tough environment in the euro zone and weakness in growth markets into account, one can be quite pleased after all.”

Despite the slowdown, a still strong labour market and rising wages helped Germany swing to its first public sector budget surplus in five years.

The Statistics Office said the federal government, states, communities and social insurance produced a small surplus of 0.1 percent of GDP. – Reuters