German economy shrank in final quarter of 2012

Euro zone uncertainty struck Germany in the last quarter of 2012, with official data yesterday showing the economy shrank by about 0.5 per cent.

Despite this late slowdown, Germany’s gross domestic product grew by 0.7 per cent overall in 2012, albeit down from 3.1 per cent in 2011. Germany also posted its first budget surplus since the start of the economic crisis five years ago.

German growth slowed throughout 2012, from 0.8 per cent in the first quarter to just 0.2 per cent in the third.

EU exports

The federal statistics office said exports remained an “economic motor”, up 4 per cent year on year. But the export trade is slowing, particularly to EU markets. The office said this was “more than compensated” by non-EU exports, allowing Germany to “escape successfully to date the current of the European economic crisis”.

Recent business surveys show managers optimistic that export prospects in the US and China will continue to compensate for weaker demand in Europe.

With a record 41.6 million people at work, the low jobless rate helped reduce social welfare spending and contributed to Germany’s total spending – federal, state and local – coming in €2.2 billion below earnings. This is the equivalent of 0.1 per cent of GDP.

Another €10 billion would have been available had it not been for Germany’s capital pay-in to the European Stability Mechanism bailout fund.

Technical recession

The first quarter of 2013 will be crucial for Germany. A second shrinkage would put the economy into a technical recession, but the Bundesbank says it does not believe this will happen.

Economists, too, are optimistic that the German economy will soon return to stronger growth.

“Businesses have clearly held back with investment because they were unsettled by the sovereign debt crisis,” said Commerzbank chief economist Jörg Krämer in a note to clients.

However, he was of the opinion that it was likely “the German economy should expand again in the first half of this year”.