Bloomberg News

German Economy May Avoid Recession in 2012, Two Institutes Say

December 20, 2011

Dec. 20 (Bloomberg) -- The German economy will probably avoid a recession even as orders from its main euro-area trading partners slump during the debt crisis, two economic institutes that advise Chancellor Angela Merkel’s government said.

The Kiel-based IfW institute said economic growth will slow to 0.5 percent in 2012 from 2.9 percent this year while the RWI in Essen said in a separate report today that the expansion will decelerate to 0.6 percent from 3 percent. Both institutes cut their outlook for next year from earlier predictions.

“Negative impetus should come from foreign trade because production in important trading partner countries in the euro region will decrease noticeably in some cases,” the Kiel institute said in an e-mailed report. “But the German economy will not end up in a recession.”

Unemployment in Germany, Europe’s biggest economy, is at a two-decade low of 6.9 percent, supporting consumer spending and helping to limit the impact of the euro-region turmoil. Business confidence unexpectedly rose for a second month in December, the Ifo economic institute said today.

“The continuing clouding-over of the foreign trade environment” is the main reason for its lowered forecast, said the RWI institute, which three months ago predicted growth of 1 percent for next year. “The fact that domestic demand is still pointing upward has a stabilizing effect.”

Consumer confidence will hold its gains in January as falling unemployment boosts the economic outlook even as Europe’s debt crisis worsens, market research company GfK SE said today, forecasting that its consumer-sentiment index, based on a survey of about 2,000 people, will remain at 5.6 next month after three straight increases.

German unemployment dropped more than economists forecast in November, with the number of people out of work falling a seasonally adjusted 20,000 to 2.91 million and the adjusted jobless rate dropping to 6.9 percent. Economists forecast a decline of 5,000, the median of 33 estimates in a Bloomberg News survey showed.

“Leading indicators suggest that economic output will stagnate in the winter half” of the year, the RWI said. “The economy will recover somewhat in the course of 2012.”

German industrial production rose more than economists forecast and factory orders surged the most in 19 months in October after three straight declines. Ifo’s business climate index rose to 107.2 from 106.6 in November. Economists expected a drop to 106, the median forecast of 36 economists in a Bloomberg News survey showed.

The Bundesbank said yesterday that German economic growth will slow to 0.6 percent in 2012 from 3 percent this year before improving to 1.8 percent in 2013. The Kiel institute said 2013 growth will be 1.7 percent.

--Editors: Alan Crawford, Leon Mangasarian

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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