German economy returned to growth of 0.1 per cent in 1st quarter, avoided recession

BERLIN - The German economy eked out a return to minimal growth in an unusually cold first quarter — a performance that was enough to keep Europe's biggest economy out of recession.

The economy grew by 0.1 per cent in the January-March quarter compared with the previous three-month period, Germany's Federal Statistical Office said Wednesday. That followed a 0.7 decline in last year's fourth quarter, a figure that was revised downward from the initial reading of 0.6 per cent.

Extremely cold weather that dragged on until the end of March was one factor in the feeble growth figure, the statistical office said. Winter conditions typically hurt industries such as construction and, between January and March, "growth was based almost only on demand by households," the office said.

The German economy is in better shape than many others in the 17-nation euro area. Recent economic indicators have shown a mixed picture but industrial orders and production data have been robust.

Germany had been expected to avoid a recession, technically defined as two straight quarters of negative growth. Gross domestic product figures for the full eurozone were due later Wednesday.

Looking ahead, prospects for Germany are improving now that the hard winter is over, said Carsten Brezski, an economist at ING in Brussels.

"Industry is gaining pace as order books have started to fill again and companies are cautiously stepping up their investment plans," he said. "Moreover, domestic demand with the solid labour market and wage increases have become a reliable growth driver."

Germany's unemployment rate of 7.1 per cent in April compares with figures well into the double digits elsewhere in the eurozone. And the economy's relative health has fueled demands for substantial pay increases in several sectors.

Early Wednesday, the IG Metall union secured a solid raise for some 3.7 million workers in the key industrial sector, a deal that heads off the threat of strikes.

Under the deal reached by negotiators in Bavaria, which is expected to be extended to the rest of the country, workers will get a 3.4 per cent raise in July followed by another 2.2 per cent next May. The agreement runs until the end of next year.

IG Metall initially sought a raise of 5.5 per cent this year alone, arguing that companies in Germany could afford it and that it would bolster private spending. But union chairman Berthold Huber said that employees "will get a fair and appropriate share of economic developments" under the deal now reached.