The German economy was hit hard by the eurozone crisis in the final quarter of last year, shrinking more than at any point in nearly three years as traditionally strong exports and investment slowed, the Statistics Office said yesterday.
The German economy might not be an island of happiness any longer but it remains at least an island of growth
Economists expect Germany to bounce back after forecasts for weak growth in the first quarter but Europe’s largest economy will be less of a pillar of support for the rest of the currency bloc, where many of its peers are deeply in recession.
“The German economy might not be an island of happiness any longer but it remains at least an island of growth in a still recessionary eurozone sea,” said ING economist Carsten Brzeski.
Gross domestic product shrank by 0.5 per cent in the final three months of 2012, the worst quarterly performance since Germany fell into a recession during the global financial crisis in 2008/2009 and only the second contraction since it ended.
The parlous fourth quarter pushed overall growth for the year down to 0.7 per cent, a sharp slowdown from the three per cent registered in 2011 and a post-reunification record of 4.2 per cent in 2010. The 2012 figure was a tad below a Reuters consensus forecast for growth of 0.8 per cent.
The Government is due to publish an estimate for 2013 growth today. An official from the Economy Ministry said growth would be 0.4 per cent this year, less than half the Government’s existing forecast of one per cent.
So far, unemployment remains low and wages are likely to rise again this year, but if ordinary Germans were to feel the pinch of the euro crisis in an election year, it could hurt popular centre-right Chancellor Angela Merkel‘s hopes for a third term.
As the economy slowed in the second half of 2012, consumers have already lost some will to spend. Household spending grew 0.8 per cent in 2012, down from 1.7 per cent in 2011 and consumer sentiment dropped to its lowest level in more than a year.
German exports and imports slid in November and industry orders fell more than expected – confirming the weak end to the year, although more recent survey evidence suggests a moderately better start to 2013. For the full year, export growth slowed to 4.1 per cent from 7.8 per cent in 2011, while equipment investment fell by 4.4 per cent, the Statistics Office said.
“In the previous two years, GDP growth had been much larger but that was due to a catching-up process after the worldwide economic crisis of 2009,” said Roderich Egeler, head of the Statistics Office, adding the economy had been robust overall.
Andreas Scheuerle of Dekabank said the 2012 figure was “disappointing” at a first glance. “But if you take the tough environment in the eurozone and weakness in growth markets into account, one can be quite pleased after all,” he said.
German companies and economic data have sent mixed signals of late. Deutsche Post said it expects that 2013 will “not be easy” .
And luxury carmaker BMW has said its home market may weaken in 2013.
There are however signs that Europe‘s largest economy, may emerge soon from the year-end contraction. The country’s private sector expanded for the first time in eight months in December and business morale climbed in the same month to the highest level in five months on an improved outlook, which points to Germany being able to avoid a recession.