Bloomberg News

German Economy Contracted in Quarter as Exports Declined

February 24, 2012

Germany’s fourth-quarter economic contraction was caused by a decline in exports as the sovereign debt crisis damped demand across the euro region.

Exports fell 0.8 percent from the third quarter, the Federal Statistics Office in Wiesbaden said today. Gross domestic product declined 0.2 percent, the office said, confirming an initial estimate published on Feb. 15. Net trade subtracted 0.3 percentage point from GDP in the quarter, today’s detailed breakdown shows.

Europe’s fiscal turmoil forced governments and consumers across the 17-nation euro area to rein in spending, damping demand for German goods in its biggest export market. Europe’s largest economy may avoid a recession, defined as two successive quarters of declining GDP. German business confidence jumped to a seven-month high in February.

“The German economy is in a soft patch that it is going to overcome,” said Gerd Hassel, an economist at BHF Bank in Frankfurt. “The fundamentals of the economy are different from countries like Spain and Italy. They’re basically sound.”

Investment in plant and machinery in Germany rose 1.1 percent in the fourth quarter and construction spending jumped 1.9 percent, today’s report shows. Private consumption declined 0.2 percent while government spending increased 0.1 percent. Domestic demand added 0.1 percentage point to GDP.

Euro-Area Divergence

After exiting the 2009 recession with a record 3.7 percent growth in 2010 and 3 percent last year, the Bundesbank predicts the German economy will expand 0.6 percent in 2012.

By contrast, the European Commission forecasts economic contractions in Italy and Spain of 1.3 percent and 1 percent respectively. The 17-nation euro economy will shrink 0.3 percent this year, the commission said yesterday.

Demand from outside the euro region helped German factory orders beat estimates in December. Investor confidence surged to a 10-month high this month as global growth improved and European leaders took steps to subdue the debt crisis.

“The picture is definitely better now than it was at the end of last year,” said Sarah Hewin, senior economist at Standard Chartered Bank in London.

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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