Germany's Recession Becomes Official

The German economy contracted more than most analysts expected in the third quarter, entering what now appears to be its worst recession in at least 12 years as both exports and domestic spending continue to fall. German gross domestic product dropped by a seasonally adjusted 0.5 percent from the second quarter, when it fell by a revised 0.4 percent, according to data from the Federal Statistics Office earlier today (Thursday). The Germany economy last had a two quarter contracted of this magnitude back in 1996.




And all the signs are that the fourth quarter will be worse than the third one, so the situation may even surpass the 1996 recession.

``The headwinds of the financial crisis and the global economic slowdown are
blowing right in the face of the German economy,'' said Carsten Brzeski, an
economist at ING Group in Brussels. ``Even more worrying, the full impact of the
financial crisis still has to unfold. Anecdotal evidence and leading indicators
are scary.''

And the 2009 outlook promises to be even worse. Only last week, the International Monetary Fund forecast economic contractions for the U.S., Japan and the euro region next year, with Germany's economy expected to shrink by 0.8 percent. The European Commission accepted last week that the entire 15-nation euro region is probably already in a recession. Just over 40 percent of German exports go to other euro-area nations. Eurostat, the European Union's statistics arm, will publish third-quarter growth data for the eurozone tomorrow.


Quarter-on-quarter positive side of the GDP growth balance sheet came from a slight increase in the final household consumption and government expenditure of households as well as an increase inventories. Imports were up significantly (largely due to the rise in oil prices - oil peaked around $147 a barrel in July, while exports dropped, thus movements in the net trade balance had a negative impact on final GDP.

The German economy did, however, continue to create jobs, and third quarter employment - at 40.5 million persons - was up by 582,000 persons (or 1.5%) on a year earlier.

Looking forward a little into Q4, the signs, as I said, are for deterioration rather than improvement, as can be seen from the fact that (according to the PMI) German services contracted for the first time since January in October.


While the manufacturing contraction which started in August really began to pick up speed.