German economy manages soft landing | Business| Economy and finance news from a German perspective | DW | 15.11.2012
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German economy manages soft landing

Europe's economy is sliding into recession, and as the continent's powerhouse, Germany is starting to feel the bite. Its gross domestic product still posts moderate growth, but the air is getting thinner.

It was to be expected in the face of much of Europe going through a phase of economic weakness: Germany's gross domestic product (GDP) rose by a meager 0.2 percent in the third quarter. According to the National Statistics Office (Destatis), that came on the back of 0.5-percent growth throughout the first half of 2012. It seems as if Germany is running out of steam.

And that's not a big surprise as most of the eurozone has been mired in recession. GDP in the 17-member single currency bloc contracted by 0.1 percent between July and September quarter-on-quarter, the EU's Eurostat agency reported. In the second quarter, it dipped by 0.2 percent. Analysts talk about a recession if a country's or area's GDP contracts in at least two consecutive quarters.

Workers are checking a Rolls Royce engine Photo: +++(c) dpa - Bildfunk+++ pixel

Investments in machinery are a barometer for business confidence

But contrary to widespread expectation, German exports haven't suffered that much so far.

"Preliminary estimates indicate that exports have risen somewhat more than imports lately," Destatis reported. The statistics agency also found that consumption had been on the up. Only corporate investments in machinery and vehicles had declined in the face of a bleak business outlook.

No recession in sight yet

Will Germany's growth engine grind to a halt towards the end of this year? "In the final quarter, sluggish eurozone demand will have an impact on the country's export-oriented industry," said Ferdinand Fichtner from the German Institute for Economic Research (DIW). But the service sector looks set to grow in the next couple of quarters ahead, the DIW claims. "Recession is not in sight," Fichtner said.

According to the Berlin-based think tank, growth will primarily be fuelled by private consumption.

"Households profit from wage hikes well above inflation rates and the robust labor market," said the DIW's Simon Junker. "Although employment might decrease marginally during the winter months, the expected phase of weakness will mean only a brief strain on the labor market."

Stagnation fears

Other pundits were less confident. "Towards the end of the year, the German economy is likely to contract slightly," Commerzbank Chief Economist Jörg Krämer said, citing the high level of uncertainty caused by the sovereign debt crisis. "I expect the German economy to post decent growth rates again only in the middle of next year."

"Germany is heading towards stagnation," warned Gustav Horn, director of the Macroeconomic Policy Institute (IMK). "The biggest worry is companies won't invest enough as this would normally herald a recession."

Horn suggested extending the government's special program to cushion the impact of a weak economy by subsidizing companies' short-term work schemes. "Those schemes helped us a lot at during the global financial crisis," Horn added.

Bleak outlook

Compared with fellow eurozone nations, Germany has been faring well. In Greece for instance, GDP plummeted 7.2 percent in the third quarter, with Portugal suffering a 0.8 percent decline and the Netherlands logging a 1.1 percent dip. Only France provided a positive surprise, seeing its economy expand by 0.2 percent.

Containers in the port of Hamburg, Germany Photo: Christian Spahrbier

Germany's trade surplus shows no sign of narrowing, for now

But signs of a weaker economy in Germany have become more frequent in Germany of late. In September, factory orders dropped by 3.3 percent, a level of decline not seen in a year and caused primarily by sagging demand from the debt-stricken euro area. Monthly exports decreased fore the first time since 2009 when the global financial crisis was at its peak.

Investor confidence dropped to its lowest level since February 2010, the Munich-based Ifo economic think tank found out in a poll among 7,000 managers. Germany's central bank, the Bundesbank, said it doesn't expect any growth in the final quarter either.

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