A recovery in consumer spending in the first three months of 2003 offered hope Germany's economy may escape a full-blown recession, analysts said today.
Europe's largest economy shrank by 0.2 per cent quarter-on-quarter as construction investment fell and imports outpaced exports.
But the headline figure masked a 0.6 per cent increase in private consumption, the strongest rise since 0.8 per cent in the second quarter of 2001, giving ammunition to analysts who believe Germany will escape a full blown recession.
"The underlying picture is much better than I thought despite this contraction in headline GDP," said Mr Elwin de Groot of Fortis Bank in Amsterdam. "It means I will probably keep my growth forecast for the year at 0.5 per cent".
Germany's economy has barely grown since a technical recession in the second half of 2001. GDP last year rose 0.2 per cent, its slowest rate in nine years.
Most analysts expect growth this year to fall short of the government's official 0.75 per cent target. The initial GDP release led many, including the Bundesbank, to say they would cut their already gloomy forecasts.
The Bundesbank said in its monthly report yesterday that the price competitiveness of German exporters had decreased 4.5 per cent since the turn of the year, although described the current level as "neutral" compared with historical averages.
"There are no signs that there is confidence about an upturn in the near future. At the same time, there are just as few signs of a stronger weakening. A lot seems to point to continued stagnation," the Bundesbank wrote.