German Growth Slowed Less Than Forecast in Third Quarter

German Growth Slowed Less Than Forecast in the Third Quarter
Larger items of mail descend from a chute to be postmarked by hand at Deutsche Post AG's sorting facility in Munich, Germany.

German growth slowed less than forecast in the third quarter and the French economy unexpectedly expanded.

German gross domestic product climbed 0.2 percent from the second quarter, when it gained 0.3 percent, the Federal Statistics Office said in Wiesbaden today. Economists predicted a 0.1 percent increase, according to the median of 46 estimates in a Bloomberg News survey. In France, GDP rose 0.2 percent in the quarter, beating economists’ median forecast of zero growth.

The better-than-expected reports from Europe’s two largest economies weren’t enough to prevent the euro area from slipping into recession. The 17-nation economy contracted 0.1 percent in the third quarter after shrinking 0.2 percent in the second, the European Union’s statistics office said today.

“This was probably the last reasonably solid quarterly figure from Germany for a while,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. “The steep fall in the leading indicators suggests that GDP will contract in the fourth quarter.”

The euro rose after Germany’s GDP release and traded at $1.2757 at 11:12 a.m. in Frankfurt, up 0.2 percent.

Growth Drivers

German third-quarter expansion was driven by exports, construction and household and public spending, the statistics office said. Company investment in equipment and inventories declined. From a year earlier, the economy grew 0.9 percent when adjusted for working days. The statistics office will publish a full break-down of third-quarter GDP on Nov. 23.

In France, growth was also driven by exports and consumer spending, while company investment fell. Second-quarter GDP was revised to a 0.1 percent decline from unchanged.

“The third quarter is probably the result of a temporary rebound at the European level,” said Michel Martinez, an economist at Societe Generale in Paris. Business sentiment surveys suggest the French economy “is heading to a moderate recession or at best remaining flat,” he said.

Spanish GDP dropped 0.3 percent in the third quarter for its fifth straight retreat. While the Italian economy also posted its fifth quarterly contraction, the GDP decline of 0.2 percent was less than half the 0.5 percent drop forecast by economists.

Euro-Area Weakness

Germany’s economic strength has helped to limit the impact of the sovereign debt crisis on euro-area GDP.

The German economy will expand 0.8 percent this year and in 2013, according to the European Commission. It predicts French GDP will rise 0.2 percent this year and 0.4 percent next year.

By contrast, the commission forecasts a 0.4 percent decline in euro-area GDP this year and just 0.1 percent growth next year. It expects annual economic contractions next year in six of the 17 euro nations.

Germany sells about 40 percent of its products to the euro area and 60 percent to the wider European Union. Its exports to other euro-area countries slumped 9.1 percent in September from a year earlier. Factory orders and industrial production fell more than forecast in September and business confidence is at its lowest in more than 2 1/2 years.

Foreign Sales

Deutsche Post AG, Europe’s largest postal service, said on Nov. 8 that third-quarter profit fell 6.5 percent as a pay increase caused spending to rise. “We see as well a slowdown of import and export volumes,” Chief Executive Officer Frank Appel said. “The German economy is not as strong as it has been in the past two years.”

Hamburger Hafen & Logistik AG, the largest container handler at Hamburg’s port, cut investment plans for this year on Nov. 13 after the global economic slowdown hurt volume and caused third-quarter profit to fall 28 percent.

Some German companies are compensating for weaker demand in Europe through sales to faster growing markets. Higher wages and unemployment of 6.9 percent -- close to a two-decade low -- are also helping to boost domestic spending.

RWE AG, Germany’s second-largest utility, yesterday increased its full-year profit forecast. Bayerische Motoren Werke AG stands by its plans to increase 2012 profit, Chief Financial Officer Friedrich Eichiner said on Nov. 6. The world’s biggest maker of luxury cars posted third-quarter earnings that beat analyst expectations, helped by growth in the U.S. and Asia.

ECB Plan

Financial markets have rallied since European Central Bank President Mario Draghi pledged to do whatever it takes to save the euro and unveiled a plan to buy government bonds. Germany’s benchmark DAX share index has gained more than 11 percent since late July.

Now, investors are waiting for Spain to request aid from Europe’s bailout fund, a prerequisite for the ECB to intervene in its debt markets.

The Bundesbank said on Oct. 22 that there are “increasing signs” that Germany’s economy will stagnate or see “a slight decrease in gross domestic product in the final quarter of the year.”

-- With assistance from Kristian Siedenburg in Vienna and Mark Deen in Paris. Editors: Matthew Brockett, Zoe Schneeweiss

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