German GDP 'likely to have shrunk' in fourth quarter

German car dealership Domestic demand for cars was strong, the Statistics Office said

The German economy is likely to have shrunk by 0.25% in the final quarter of 2011, an official from the Federal Statistics Office has said.

For the whole of 2011, the economy grew by 3%, official figures from the Statistics Office showed, driven by strong growth in the first half.

It said the impetus for growth was mainly provided by domestic demand.

However, the annual growth rate was weaker than the post-unification record of 3.7% seen a year earlier.

The annual figure was based on an estimate for the fourth quarter, with the official data for the last three months due to be published on 15 February.

But Norbert Raeth from the Statistics Office told a news conference that the economy was likely to have shrunk by "around a quarter of a percentage point" in the final quarter.

Although the 3% expansion in 2011 marked a slowdown in growth from 2010, it is still a strong figure compared with other economies.

The Organisation for Economic Co-operation and Development (OECD) expects growth in 2011 of 1.7% in the US, 0.9% in the UK, 1.6% in France and 0.7% in Spain and Italy.

"[Germany's] economy is above where it peaked in 2008. Unemployment is at 6.8%. It is still firing on all cylinders," Jonathan Bell from Stanhope Capital told BBC World News.

"The difference is that it's now seeing its growth slowing and I think that's going to continue into next year."

Rising car sales

Roderich Egeler, the head of the Statistics Office, told a news conference: "The economic recovery took place primarily in the first half of the year."

Analysis

The old saying "it's an ill wind that blows nobody any good" is doubly true for Germany.

Firstly, it's finding it very easy to raise money. Earlier in the week, the Bundesbank auctioned 3.9bn euros worth of debt - in plain English: the government borrowed money and got lenders to bid for the lowest rate of interest they would accept for their loan.

Amazingly, the winning bids were at a negative rate of interest. In other words, institutions were prepared to pay the German government money in order to lend to it!

That's because, compared with the rest of Europe, investors see Germany as a solid institution in which to park their money. And they think that if the euro collapses, the German economy will still be standing.

Secondly, because of the problems in Greece, Portugal, Ireland and Spain, the value of the euro against the dollar has fallen - by about 10% in the second half of last year. That makes German exports cheaper compared to US ones.

Nobody is saying it loudly but German exporters have had a bit of a fillip from the travails elsewhere.

Private consumption had been strong in 2011, he said, growing by 1.5%, up from 0.6% in 2010.

He added that demand for cars had been particularly strong, with German car sales rising by 6.1% in December.

Exports, the main driver of the German economy, rose by 8.2%, although this marked a slowdown from the 13.7% growth seen last year.

Andreas Rees, chief German economist at Unicredit, said he did not think Germany would fall into recession.

"We think growth of about 1% is possible for this year. The Ifo [business confidence] index has risen for the last two months. That indicates that the low point in terms of company sentiment might already be over," he said.

"The labour market is also going very well. That gives tailwind to private consumption, at least in the first half.

"There is also hope from the US, where the economy is going better again. That will help us. It is a positive sign for exports, which are also profiting from the weak euro. The global economy is weakening, but we will not see a collapse."

But Joerg Zeuner, chief economist at VP Bank, was more cautious and said that Germany could not isolate itself from the tensions within the eurozone.

"Another quarter of contraction and thereby a technical recession are distinctly possible," he said.

"However if there is no further escalation in the eurozone debt crisis, the German economy should still grow in 2012, albeit at a moderate 0.5%," he added.

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