Bloomberg News

German Consumer, Company Spending Boosted Third-Quarter Growth

November 25, 2011

Nov. 24 (Bloomberg) -- Germany’s third-quarter economic rebound was driven by consumer and company spending even as the debt crisis threatened to drag the euro area into recession.

Private consumption expanded 0.8 percent from the second quarter and company investment in plant and machinery jumped 2.9 percent, the Federal Statistics Office in Wiesbaden said today. Gross domestic product advanced 0.5 percent from the previous three months, the office said, confirming an initial estimate published on Nov. 15. That was an acceleration from the 0.3 percent growth notched in the second quarter.

The German economy, Europe’s largest, is showing signs of cooling as the escalating debt crisis damps demand for its goods across the 17-nation euro region. While German unemployment remains near a two-decade low, supporting consumer spending, the Bundesbank this week slashed its growth forecast for 2012 to between 0.5 percent and 1 percent from 1.8 percent.

“It could well be that in the absence of places to put their money, German households have simply decided to spend,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “Private consumption could be a stabilizing factor in a fourth quarter that we expect to be negative.”

Net trade contributed just 0.1 percentage point to GDP growth in the third quarter as imports rose 2.6 percent, outpacing the 2.5 percent increase in exports. Domestic demand added 0.4 percentage point to growth.

Christmas Spending

The German Retail Federation forecasts that the November- December period including the year-end holiday shopping season will see sales grow 1.5 percent to 78 billion euros ($104 billion) from a year earlier, with games, watches, jewelry, books and consumer electronics being the biggest sellers.

German retail sales rose 0.4 percent in September from the previous month. Unemployment is running at 7 percent, close to the lowest since reunification two decades ago.

German companies such as Porsche SE are relying on faster- growing emerging markets to support sales as the debt crisis curbs demand in Europe. Helmut Broeker, Porsche’s China chief, said on Nov. 22 that “the order intake is strong.”

At the same time, Schaeffler AG, the roller-bearing maker that controls Continental AG, said earlier this week that revenue growth in the fourth quarter may be restrained by slowing demand for machine parts in Europe.

Euro-area GDP increased 0.2 percent in the third quarter from the previous three months, when it also rose 0.2 percent. European Union Economic and Monetary Affairs Commissioner Olli Rehn said earlier this month that the region’s recovery had “come to a standstill,” and European Central Bank President Mario Draghi has warned about the risk of a “mild recession.”

Adding to signs of slowdown, German business confidence probably fell to the lowest in 20 months in November. The Ifo institute will release that report at 10 a.m. in Munich today.

“Germany won’t be immune to a slowdown caused by the escalating debt crisis,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “Business confidence is weak, and companies will be reluctant to spend and invest. We can’t rule out the possibility of a recession starting in the fourth quarter.”

--With assistance from Julie Cruz and Alex Webb in Frankfurt. Editors: Simone Meier, Matthew Brockett

To contact the reporter on this story: Jeff Black in Frankfurt at jblack25@bloomberg.net

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


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