Germany: Economy contracts more than expected in fourth quarter
February 22, 2013
In the fourth quarter, GDP declined a seasonally adjusted 0.6% over the previous period, confirming the flash estimate released on 14 February. The reading contrasted the 0.2% expansion observed in the third quarter and marked, in fact, the sharpest decline recorded since March 2009. In addition, the quarterly drop exceeded market expectations, which had the economy declining 0.5%. Compared to the same period the year before, the economy grew only 0.1% in Q4, weaker than the 0.4% expansion observed in Q3. In the full year 2012, the economy grew 0.7%, is only a fraction of the 3.0% expansion recorded in 2011.
The contraction seen in the final quarter of 2012 was driven by a deterioration in the external sector amid weak demand from Germany's trading partners in the Eurozone. Exports of goods and services plunged 2.0% in Q4, which contrasted the 1.5% increase observed in Q3. Imports also declined, albeit less sharply, falling 0.6% in Q4 (Q3 2012: +0.6% quarter-on-quarter). As a result, the net contribution from the external sector to overall economic growth swung from a 0.5 percentage-point contribution in the third quarter to a 0.8 percentage-point detraction.
On the domestic front, private consumption increased 0.1% over the previous quarter (Q3: 0.0% qoq), while government spending slowed from a 0.7% increase in the third quarter to a 0.4% expansion in the final quarter of 2012. On the other hand, gross fixed investment contracted 0.7% in Q4, which followed the 0.4% decline recorded in the third quarter.
The government revised its growth forecast for this year. Accordingly, the government now sees the economy growing 0.4%, which is below its previous 1.0% estimate. For 2014, the government expects economic activity to increase 1.6%. Meanwhile, the Bundesbank expects the economy to grow 0.4% this year. For 2014, the Bank sees the economy growing 1.9%, if "the euro-area banking and sovereign debt crisis does not escalate further".
Author: Ricardo Aceves, Senior Economist