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Germany narrowly scrapes by recession

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(Globalpost/GlobalPost)

The German economy, Europe's biggest, got off to an unexpectedly weak start to the year, as it battled freezing winter weather, sagging exports and weak investment, official data showed on Wednesday.

And at marginal growth of just 0.1 percent, the economy only narrowly escaped a recession, which is technically defined as two consecutive quarters of economic contraction.

Gross domestic product (GDP) grew by an anaemic 0.1 percent in the period from January to March, following a brief and sharp contraction of 0.7 percent in the fourth quarter, the federal statistics office Destatis calculated in a preliminary estimate.

The number fell short of analysts' expectations for slightly stronger growth of 0.3 percent in the first quarter.

While Destatis did not provide a breakdown of the different GDP components -- to be published later this month -- it said that the "extreme winter weather conditions played a role in this weak growth."

"According to our calculations, the only positive impulses came from private households which increased their spending at the start of the year," the statisticians said.

"In investments, the negative trend we saw in 2012 continued and investment was down quarter-on-quarter," they said.

And foreign trade had little effect on growth, with both imports and exports falling.

Germany, unlike most of its eurozone neighbours, has been spared the worst of Europe's long and debilitating sovereign debt crisis, even if growth shuddered to a standstill at the end of last year.

But the government, the Bundesbank and leading economic think-tanks are all projecting a rebound this year.

Just last month, Economy Minister Philipp Roesler said Germany could "look to the future with optimism", despite recent disappointing economic data and falling confidence.

"2013 will be a good year," Roesler had said, upgrading Berlin's growth forecast for the current year to 0.5 percent from a previous prognosis of 0.4 percent.

Given such optimism, buoyed by recent better-than-expected industrial data, analysts were disappointed by the first-quarter GDP figures.

Growth was "anaemic", said Newedge Strategy analyst Annalisa Piazza.

"The outcome is softer than anticipated. In a nutshell, the German economy seems to have struggled to gain momentum in the first quarter despite signs of resilience in its industrial activity data," she said.

Berenberg Bank economist Christian Schulz said Germany "will have to rely on domestic demand for growth this year."

"For exports, Germany's traditional growth engine, the outlook remains more clouded this year," the expert warned.

"Still, based on strong fundamentals, German growth should accelerate over the course of 2013 and reach trend rates in the second half. A strong Germany also boosts export chances for the eurozone periphery," Schulz said.

UniCredit analyst Andreas Rees believed that the GDP data "should be taken with a pinch of salt, or maybe even two."

They were "distorted to the downside by unusually harsh weather conditions ... which cannot be taken into account by standard seasonal adjustment methods," he said.

In the construction sector in particular, there was a "whopping gap" in orders and output.

"This is very good news for overall economic activity in the second quarter, since a catching-up effect will kick in very soon," Rees said.

Goldman Sachs economist Dirk Schumacher was similarly confident that "the fundamental picture remains sound, and we forecast an acceleration in the second half of the year."

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http://www.globalpost.com/dispatch/news/afp/130515/germany-narrowly-scrapes-recession