German Fourth-Quarter Slump Caused by Exports, Investment

Germany’s economic contraction in the fourth quarter was driven by a drop in exports and investment as the sovereign debt crisis damped euro-area demand, a breakdown of the data shows.

Exports fell 2 percent from the third quarter and company investment in plant and machinery declined 0.7 percent, the Federal Statistics Office in Wiesbaden said today. Gross domestic product dropped 0.6 percent, the office said, confirming an initial estimate on Feb. 14. From a year earlier, the economy grew 0.4 percent when adjusted for working days.

Europe’s largest economy should avoid recession and return to growth this quarter as industrial production picks up, the Bundesbank said on Feb. 18. While unemployment at a two-decade low and exports to emerging markets are helping Germany to weather the euro-area recession, uncertainty over Europe’s path out of the debt crisis could still weigh on the recovery.

“We should return to growth in the first quarter and investment should resume its upward trend in the course of this year,” said Lothar Hessler, an economist at HSBC Trinkaus & Burkhardt AG in Dusseldorf, who expects the economy to expand 0.6 percent in 2013. “The risks to this outlook are a possible re-eruption of the European crisis after elections in Italy, or continued uncertainty about the U.S. fiscal cliff.”

Household spending rose 0.1 percent in the fourth quarter and public spending increased 0.4 percent, today’s report showed. Domestic demand added 0.2 percentage point to GDP, while net trade subtracted 0.8 percentage point.

Euro-Area Recession

The recession in the 17-nation euro area deepened in the fourth quarter, with GDP falling by a more-than-forecast 0.6 percent, damping demand for German goods in the country’s largest export market.

While measures of economic confidence in Europe have risen, European Central Bank President Mario Draghi has said he expects further weakness in the region’s economy in the first half of the year followed by a “very gradual” recovery.

The ECB forecasts a 0.3 percent contraction for the euro area this year, while the Bundesbank predicts 0.4 percent growth in Germany.

German business confidence probably rose to an eight-month high this month, adding to signs of gathering economic momentum. That report is due from the Ifo institute in Munich at 10 a.m. today.

Kabel Deutschland Holding AG, Germany’s biggest cable television operator, said on Feb. 20 it would boost investment in its network by 300 million euros ($396 million) over two years as sales beat expectations.

“The German economy is beginning to move again,” said Gerd Hassel, an economist at BHF Bank AG in Frankfurt. “Exports should grow this year, although perhaps not by much. But a backlog in investment caused by the debt crisis could begin to be cleared.”

To contact the reporter on this story: Jeff Black in Frankfurt at jblack25@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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