German economy up 3% last year but shrunk in final quarter

GERMANY’S ECONOMY grew by 3 per cent last year, according to official data released yesterday, but began shrinking in the final quarter.

The slowdown was expected and Europe’s largest economy is forecast to grow by 1 per cent at most this year, according to various forecasts.

“The catch-up process continued in the German economy during the second year after the economic crisis and, during 2011, the price-adjusted GDP again exceeded its pre-crisis level,” said the Destatis federal statistics agency.

After its most serious post-war recession in 2009, shrinking by 5.1 per cent, the economy grew rapidly by 3.7 per cent in 2010 followed by front-loaded growth of 3 per cent in 2011.

“The economy in 2012 will be overshadowed by the crisis in the euro zone,” said Simon Junker, economic expert with Berlin’s DIW economic institution. “Exports as well as domestic demand will experience a passing damper.”

The DIW institute expects the German economy to gain momentum once more during the summer, if European politicians agree new fiscal rules for the euro zone.

Other economists are less optimistic, suggesting that a second quarter of contraction was possible, putting Germany technically into recession.

“Germany cannot isolate itself so easily from tensions within the euro zone,” Jörg Zeuner, chief economist with VP Bank in Paris, told Reuters.

Some 28 per cent of Germany’s exports go to the EU and Switzerland, with only 2.5 per cent destined for China.

Three leading European economic institutes have warned that euro zone economies will face a tough 2012.

Data published by Germany’s Ifo, INSEE in Paris and Istat in Rome forecast 0.2 per cent shrinkage in the first quarter of 2012 alone.

“Household consumption will be held back by fiscal consolidation and deteriorating labour market conditions,” the institutes said. “Due to weak public investment and the expected postponement of many private sector projects, total investment is expected to fall over the forecast horizon.”

The three economic agencies warned that the single currency area is “subject to various risks, in particular those stemming from possible turbulences in euro area sovereign debt markets”.

An auction of German five-year bonds was more than double oversubscribed yesterday, with the yield falling nine basis points to 0.74 per cent, almost a record low.

The European Central Bank is expected to leave its key interest rate unchanged at today’s governing council meeting in Frankfurt.

German stocks slipped in price after the news of the country’s economic contraction in its final 2011 quarter emerged.

Metro AG, the nation’s largest retailer, slid after UBS AG advised selling the shares. Douglas Holding AG tumbled 9.8 per cent after the retailer said earnings this year will decline.