Bloomberg News

German, French GDP Rebounds in Third Quarter on Private Spending

November 16, 2011

Nov. 15 (Bloomberg) -- German and French economic growth rebounded in the third quarter on stronger consumer spending, even as the region braces for a recession sparked by an escalating sovereign debt crisis.

Gross domestic product in Germany, Europe’s largest economy, rose 0.5 percent from the second quarter, when it increased 0.3 percent, the Federal Statistics Office in Wiesbaden said today. The French economy, Europe’s second- biggest, expanded 0.4 percent after contracting 0.1 percent in the previous period. The growth data were in line with the median forecasts in Bloomberg News surveys of economists.

Germany and France may succumb to the debt crisis in the fourth quarter as growth falters across the euro region, their largest export market. The Spanish and Belgian economies stalled in the three months through September, while Portugal’s contracted for a fourth straight quarter. French bond yields have jumped almost 1 percentage point in two months, and Italy’s borrowing costs last week surged above 7 percent, the level that triggered bailout requests from Greece, Portugal and Ireland.

“With France and Italy seemingly drowning in the maelstrom of the debt crisis, the German economy has lost its immunity,” said Carsten Brzeski, a senior economist at ING Group in Brussels. “Austerity measures in France and Italy will also hurt German exporters.”

The euro was little changed after the reports and traded at $1.3603 at 9 a.m. in Frankfurt.

‘Come to a Standstill’

The economy of the 17-nation euro region probably expanded 0.2 percent in the third quarter, the median of 39 forecasts in a Bloomberg survey shows. The European Union statistics office in Luxembourg will release that report at 11 a.m. today.

The European Commission cut its 2011 and 2012 euro-area forecasts on Nov. 10 to 1.5 percent and 0.5 percent from 1.6 percent and 1.8 percent respectively. EU Economic and Monetary Affairs Commissioner Olli Rehn said the recovery “has come to a standstill.”

The German statistics office revised up second-quarter growth from an initially reported 0.1 percent. It said household spending was the main driver of growth in the third quarter, with company investment in plant and machinery also making a positive contribution. Rising exports were offset by imports so that net trade barely impacted on GDP. Construction activity declined somewhat in the quarter, the office said.

‘Calm Before The Storm’

In France, consumer spending gained 0.3 percent in the third quarter and investment increased 0.4 percent. Net trade contributed 0.1 percent to growth.

“The third quarter is the calm before the storm,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “Most indicators and the escalation of debt crisis suggest the economy is heading for a serious contraction.”

German business confidence fell to a 16-month low in October, unemployment rose for the first time in more than two years and factory orders dropped for a third month in September, recording the longest streak of monthly declines since the collapse of Lehman Brothers Holdings Inc.

Heidelberger Druckmaschinen AG announced last week that it will cut employees’ working hours in the second half of the year. Wincor Nixdorf AG is currently considering such a move.

Chancellor Angela Merkel’s economic advisers forecast on Nov. 9 that German growth will slow to 0.9 percent next year from 3 percent in 2011. France’s economy will expand 0.6 percent in 2012 after growing 1.6 percent in 2011, according to the European Commission.

German industrial companies will find it “difficult” to maintain output over the next six months amid weaker demand, the Bundesbank said in its latest monthly report. “Businesses have again scaled back their expectations and the inflow of new orders, especially from abroad, has lessened noticeably” it said.

--With assistance from Kristian Siedenburg in Vienna and Richard Weiss in Frankfurt. Editors: Matthew Brockett, Craig Stirling

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net; Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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