Bloomberg News

German Economy Probably Contracted 0.5% in Fourth Quarter

January 15, 2013

German Economy Probably Contracted 0.5% in Fourth Quarter

Gross domestic product may have dropped as much as 0.5 npercent from the third quarter, the Federal Statistics Office in Wiesbaden said today in a preliminary estimate. Photographer: Sean Gallup/Getty Images

Germany’s economy, Europe’s largest, probably shrank in the final quarter of 2012 as the sovereign debt crisis and weaker global growth damped exports and company investment.

Gross domestic product may have dropped as much as 0.5 percent from the third quarter, the Federal Statistics Office in Wiesbaden said today in a preliminary estimate. It said growth slowed to 0.7 percent in 2012 from 3 percent in 2011. Economists had forecast 0.8 percent expansion for last year, according to the median of 28 estimates in a Bloomberg News survey. Germany posted a budget surplus of 0.1 percent of GDP, the first since 2007 and up from a deficit of 0.8 percent in 2011.

While today’s fourth-quarter estimate leaves Germany on the brink of recession, the Bundesbank predicts the economy will stabilize and avoid two consecutive periods of contraction even as the debt crisis curbs growth across the euro region. Latest data suggest confidence is improving, and European Central Bank President Mario Draghi last week expressed optimism that the 17- nation euro economy will return to health later this year.

“There shouldn’t be a technical recession,” said Christian Ott, an economist at Natixis Securities in Frankfurt. “We expect some level of economic growth in the first quarter as domestic demand compensates somewhat for weak foreign trade. At the same time, the recovery in global trade will be very slow. If it falls away completely, then we won’t manage to avoid recession.”

U.K. Inflation

The euro traded at $1.3354 at 11:46 a.m. in Frankfurt, down 0.2 percent today. European stocks were little changed, with the Stoxx Europe 600 Index (SXXP) down 0.03 percent.

In the U.K., a report showed that inflation held at 2.7 percent in December, the highest since May and in breach of the Bank of England’s 2 percent limit. German inflation accelerated to 2 percent from 1.9 percent in November, the statistics office said in a separate report.

German company investment in plant and machinery dropped 4.4 percent in 2012 and construction spending was down 1.1 percent, the office said. Export growth slowed to 4.1 percent from 7.8 percent in 2011.

Government spending rose 1 percent, the same as a year earlier, while household consumption gained 0.8 percent, less than the 1.7 percent increase in 2011.

The first official estimate for fourth-quarter GDP is due from the statistics office on Feb. 14.

Bundesbank Forecasts

The Bundesbank predicted on Dec. 7 that the economy will stabilize in the current quarter, even as a recession in the euro area curbs demand for German goods. Still, the Frankfurt- based central bank lowered its outlook and forecast growth of just 0.4 percent this year before accelerating to 1.9 percent in 2014.

“The outlook for a growth recovery in 2013 is good, despite the weak starting point,” said Christian Schulz, senior economist at Berenberg Bank in London. “Of course, the ongoing recession and high unemployment in many euro-zone countries pose risks. Setbacks are likely, but the ECB’s safety net should help to contain them.”

The ECB, which kept interest rates unchanged at a record low last week, has said it stands ready to buy government bonds if certain conditions are met. While risks to the economic outlook remain skewed to the downside, Draghi said signs for “positive contagion” are emerging that could help foster a “gradual recovery” in the euro area later in the year.

Business Confidence

German business confidence rose for a second month in December, unemployment held close to a two-decade low and industrial production and retail sales increased in November. Financial markets also recovered at the end of last year, with the benchmark DAX index gaining 11.5 percent since mid-November.

Continental AG, Europe’s second-largest maker of auto parts, said yesterday sales and profitability growth may slow in 2013 as demand within the region falters. The company has nevertheless mitigated the effects of the debt crisis by following Volkswagen AG and other German carmakers into growing markets.

U.S. retail sales probably rose in December as Americans wrapped up their holiday shopping and auto dealers closed out the best two months since 2008, economists surveyed by Bloomberg predicted ahead of a report later today.

“Germany is a very competitive economy and in a position to exploit improvements in the U.S. and China,” said Anatoli Annenkov, an economist at Societe Generale in London. “Growth won’t be strong at the beginning of the year but it will be decent.”

To contact the reporters on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net; Stefan Riecher in Frankfurt at sriecher@bloomberg.net

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


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