German economy grows 0.2%

German economic growth slowed less than economists forecast in the third quarter as exports and household spending rose, a new report showed.

Gross domestic product climbed 0.2 per cent from the second quarter, when it gained 0.3 per cent, the Federal Statistics Office said in Wiesbaden today. Economists predicted a 0.1 per cent increase, according to the median of 46 estimates in a Bloomberg News survey.

In France, GDP rose 0.2 per cent in the quarter, beating economists' median forecast of zero growth.

The better-than-expected reports from Europe's two largest economies may help the euro area to skirt recession. The European Union's statistics office in Luxembourg will publish third-quarter GDP data for the 17-nation economy at 11am. Economists surveyed before today's data predicted a 0.1 per cent contraction following a second-quarter decline of 0.2 per cent, according to a Bloomberg survey.

"The German economy is quite solid," said Annamaria Grimaldi, an economist at Intesa Sanpaolo in Milan. Still, "the crisis is now showing its effect on Germany. Everything points to a further deceleration or even a contraction in the fourth quarter."

Third-quarter expansion was driven by exports, construction and household and public spending, the statistics office said. Company investment in equipment and inventories declined. From a year earlier, the economy grew 0.9 per cent when adjusted for working days. The statistics office will publish a full break- down of third-quarter GDP on November 23rd.

The economy will expand 0.8 per cent this year and in 2013, according to the European Commission. By contrast, it forecasts a 0.4 per cent decline in euro-area GDP this year and just 0.1 per cent growth next year. It predicts annual economic contractions next year in six of the 17 euro nations.

Germany sells about 40 per cent of its products to the euro area and 60 per cent to the wider European Union. Its exports to other euro-area countries slumped 9.1 per cent in September from a year earlier. Factory orders and industrial production fell more than forecast in September and business confidence is at its lowest in more than two years.

Some German companies are compensating for weaker demand in Europe through sales to faster growing markets. Higher wages and unemployment of 6.9 per cent - close to a two-decade low - are also helping to boost domestic spending.

Bloomberg