German growth grinds to halt at end of 2011

Germany grew by a robust three per cent last year but the debt crisis brought Europe’s biggest economy almost to a halt in the final months, official data showed yesterday.

German gross domestic product (GDP) expanded three per cent in 2011, compared with record growth of 3.7 per cent the previous year, the national statistics office Destatis calculated.

The strong performance enabled Europe’s economic powerhouse to bring down its public deficit – the shortfall between government spending and income – to just one per cent of GDP last year from 4.3 per cent in 2010.

That is the first time since 2008 that the German deficit ratio has been below the European Union’s ceiling of three per cent.

At the same time, GDP likely shrank by “around a quarter of a percentage point” in the final quarter, Destatis official Norbert Raeth told a news conference. “Most of the growth took place in the first six months,” said Destatis president Roderich Egeler. Even though activity has been slowing in the second half of the year as the eurozone debt crisis increasingly puts the brakes on growth, most analysts believe Germany will be able to escape a recession, which is defined as two consecutive quarters of negative growth.

The driving force behind growth was domestic demand, with consumer spending up 1.5 per cent, the strongest increase in five years.

In addition, investment was also strong, with investment in equipment rising by 8.3 per cent.

Foreign trade also contributed to growth, adding 0.8 percentage points to the overall GDP figure, with German exports rising 8.2 per cent in 2011 and imports up by 7.2 per cent, Destatis calculated.

At three per cent, German growth is double the anticipated average for both the European Union and the eurozone, as well as for the United States.

“According to current projections, Germany is among the top performing economies in Europe in 2011, with stronger GDP growth seen only in Sweden, Poland, Finland and the Baltic states,” Egeler said.

In an initial response to the data, the Berlin-based think-tank DIW said it was now projecting growth of only 0.6 per cent for the current year.

“After expanding strongly for the past two years, growth will be much lower this year in the wake of the eurozone crisis,” said DIW economics chief Ferdinand Fichtner.

“Both exports and domestic demand will be temporarily hit,” predicted another DIW economist Simon Junker.

“The heavily export-orientated German economy will not be able to escape the global slowdown,” he said.

“Nevertheless, if policymakers succeed in curbing the crisis quickly and credibly, then investment and consumer spending will pick up again sharply in the summer,” and exports would also recover, Fichtner predicted.

“German companies are competitive and well-positioned in the fast-growing developing countries,” Fichtner said.

“And the situation on the labour market, too, should not deteriorate substantially if the fallout from the crisis does not prove too long-lasting,” he said.