German Economic Contraction Driven by Export Slump
German exports slumped in the fourth quarter, causing Europe’s largest economy to contract the most in 22 years.
Exports dropped 7.3 percent from the previous quarter and company investment in plant and machinery declined 4.9 percent, the Federal Statistics Office in Wiesbaden said today. Gross domestic product fell a seasonally adjusted 2.1 percent, the office said, confirming an initial estimate from Feb. 13. That’s the third consecutive quarterly drop and the biggest since the first three months of 1987.
Companies are scaling back production and cutting jobs as global growth grinds to a halt and demand for exports wanes. The German government expects the economy to contract 2.25 percent this year, its worst performance since World War II.
“When the world economy marches into recession it has considerable consequences for an export-oriented nation like Germany,” said Alexander Koch, an economist at UniCredit MIB in Munich. “The decline in investment and exports was impressive and incoming data show that prospects for the first quarter aren’t any better.”
From a year earlier, the economy shrank 1.7 percent when adjusted for calendar effects. The International Monetary Fund expects the global economy to grow just 0.5 percent this year. GDP in the 16-nation euro area is forecast to decline 2 percent.
Japanese Exports
Japan’s exports plunged 45.7 percent in January from a year earlier as recessions in the U.S. and Europe smothered demand for the country’s cars and electronics, the Finance Ministry said today in Tokyo.
Germany’s statistics office said net trade was responsible for 2 percentage points of the fourth-quarter decline in GDP.
German consumer spending fell 0.1 percent in the fourth quarter from the third and construction investment declined 1.3 percent. Inventories made a positive contribution to GDP need a personal loan with bad credit.
“Companies weren’t able to retract production as fast as demand waned,” said Michael Holstein, an economist at DZ Bank AG in Frankfurt. “Thus, the risk for the first quarter is even bigger as firms try to reduce their inventories.”
Volkswagen AG, Europe’s biggest carmaker, said sales dropped 21 percent in January from a year earlier, while deliveries at Bayerische Motoren Werke AG, the world leader in luxury autos, fell 24 percent. MAN AG, Europe’s third-largest truckmaker, said it will cut costs further and extend reductions in employees’ working hours after declining sales caused fourth-quarter profit to plunge by almost half.
ECB Rate Cuts
European heavy-truck sales plunged 35 percent last month, more than double the drop in December, the Brussels-based European Automobile Manufacturers Association said in a statement today.
The European Central Bank has indicated it will cut interest rates to a record low at its next policy meeting on March 5. The bank has already reduced its key interest rate by 2.25 percentage points since early October to 2 percent in an effort to bolster the euro-region economy.
Germany’s government has doubled its fiscal stimulus program, which includes tax cuts and infrastructure investment, to about 80 billion euros ($102 billion) over two years.
“The economic stimulus packages, lower inflation and generous ECB rate cuts should bring the downturn to a halt in the second half of the year,” said Simon Junker, an economist at Commerzbank AG in Frankfurt. Still, “the German economy will probably contract by 3 percent to 4 percent this year as a whole.”
Filed under: finance by Wolf