Thu, Feb 26, 2009 - Page 10 News List

German output declines 2.1 percent

WORSE TO COME The data suggest Germany is in its worst recession since World War II as the fourth quarter marked the third straight quarter of economic decline

AFP , FRANKFURT, GERMANY

The German economy, Europe’s biggest, posted a sharp contraction late last year as crucial exports collapsed while several economists have now revised their forecasts for this year even lower.

German output declined by 2.1 percent in the last quarter of last year, its sharpest contraction since the country was reunited in 1990, official data confirmed yesterday.

The fourth-quarter drop from the previous three-month period was the third straight quarter of economic decline and suggested that Germany was in the midst of its worst recession since World War II.

For all of last year, economic activity expanded by 1.0 percent when data was adjusted for the number of working days, a statement by the Destatis statistics service said.

This year, the economy could shrink by 3.5 percent or more German bank analysts said, while the official forecast currently sees a contraction of between 2.0 percent and 2.5 percent, which would already be the country’s worst slump in six decades.

Confirming figures first released on Feb. 13, Destatis said that “the German economy declined markedly in the fourth quarter of 2008.”

Going back before German reunification, UniCredit analysts Alexander Koch said the drop was the strongest quarterly decline since early 1987, when a hard winter shut down construction activity.

Destatis said the main reason for Germany’s current slump was a fall in exports, which plummeted by 7.3 percent in the fourth quarter while imports declined by a more modest 3.6 percent.

Germany, which accounts for about a third of all eurozone output, was still the world’s leading exporter last year, just ahead of China, and has been slammed by the global economic slowdown.

“The unprecedented slump in export orders in the course of last year triggered the strongest drop in real exports since reunification,” Koch said.

German companies also cut investment in machinery and equipment as orders dried up, though inventory building contributed slightly to business activity.

On an annual comparison, fourth-quarter GDP shed 1.7 percent from the same period in 2007, Destatis said.

For this year, Koch said the “current ugly data” led UniCredit to revise its German forecast lower to an economic contraction of between 2.5 percent and 3.5 percent.

Deutsche Bank’s chief economist Norbert Walter warned on Monday that the economy could shrink by 5 percent, and assumed there would be “a real upswing” in the middle of the year.

“It cannot be ruled out that this upswing will not come,” Walter told the mass circulation daily Bild. “Therefore a worse result than this [5 percent contraction] can no longer be excluded.”

Meanwhile, a total of 40.8 million people were employed in Germany last year, an increase of about 1.0 percent from 2007 and the highest level since reunification, Destatis said.

But the rate of increase fell significantly as the year progressed and unemployment stood at 6.6 percent at the end of last year, it added, which curbed consumer spending.

“The final consumption expenditure of households dropped by 0.6 percent as compared with the previous year,” the statement said.

Germany’s jobless rate is expected to climb to 8.4 percent this year, officials said last month, while a poll of top economists published on Monday by the Financial Times Deutscheland predicted that 800,000 more people could be out of work by the end of next year.

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