Germany Is Officially in Recession

The Federal Statistical Office has announced the economy is in recession, with third-quarter data even worse than expected

Everyone knew it was coming. But on Thursday, Germany's Federal Statistical Office made it official: the country is in a recession. In the third quarter, Germany's gross domestic product shrank by 0.5 percent relative to the previous quarter. Most economists define a recession as two quarters of negative growth in succession.

The third quarter results were even worse than the minus 0.2 percent that experts had been expecting. According to Thursday's announcement, the German economy—Europe's largest—shrank by 0.4 percent in the second quarter, a slight correction from the minus 0.5 percent previously announced.

"The (third quarter) shrinkage is stronger than we had expected," Sebastian Wanke, an economist at DekaBank, told Reuters. "Unfortunately, the early indicators show that things won't get much better in the fourth quarter," said Dirk Schumacher, an expert with Goldman Sachs.

For years, Germany's economy has been buoyed by strong exports. Now that orders and sales overseas have plunged, however, the sector is dragging the entire economy down with it, despite indications that Germans may be spending more money.

The Industrial World Is in Recession

Meanwhile, the Organization for Economic Cooperation and Development also said Thursday that the entire industrialized world is likely already in a state of recession.

"The OECD area economy appears to have entered recession," the organization said, pointing to data from the United States, Japan and the euro zone, Europe's common currency area.

The group said that gross domestic product across its 30 member states would drop by 0.3 percent in 2009—forecasting a drop of 0.9 percent in the US, 0.1 percent in Japan and 0.5 percent in the euro zone.

Indeed, a sense of general economic gloom has descended over the 15 countries that belong to the euro zone. In the second quarter, the euro zone economy contracted by 0.2 percent. Recent industrial data—showing that industrial output in France had dropped by 0.5 percent in France, by 2.1 percent in Italy and by 3.6 percent in Germany—have most analysts assuming that third quarter numbers, once they are released, will likely confirm that the euro zone has in fact slipped into a recession.

The news from Great Britain is no better. Bank of England Governor Mervyn King warned on Wednesday that recession was coming for the United Kingdom as well and would likely be longer than expected. He said it might be the worst the country has seen since the early 1990s. King also warned of possible deflation and said that growth would likely not return to the British economy there until the latter half of 2009, raising expectations of yet another Bank of England interest rate slash.

Back in Germany, Thursday's developments come on the heels of a Wednesday forecast by an independent panel of economic advisors to the German government predicting that growth in 2009 would by 0.0 percent, lower than the German government's own prediction of 0.2 percent growth. The International Monetary Fund has a much more pessimistic view of the country's economic future, forecasting shrinkage of 0.8 percent in 2008.

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