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Tuesday, February 15, 2005 12:29:01 PM
German economy teeters on edge of new recession at end of 2004
German economy teeters on edge of new recession at end of 2004
The German economy, the biggest in the 12-country eurozone, was teetering on the edge of its third recession in just four years at the end of 2004, but the outlook for this year is brighter with investor confidence on the rise, data showed.
The German economy, the biggest in the 12-country eurozone, was teetering on the edge of its third recession in just four years at the end of 2004, but the outlook for this year is brighter with investor confidence on the rise, data showed.
German gross domestic product (GDP) unexpectedly shrank by 0.2 percent in the last three months of 2004, after notching up zero growth in the previous quarter, the federal statistics office, Destatis, calculated.
Recession is technically defined as two consecutive quarters of negative growth, meaning that the German economy only narrowly escaped another recession in the second half of 2004.
The German economy was last in recession in the second, third and fourth quarters of 2001 and then from the fourth quarter of 2002 to the second quarter of 2003.
The 0.2-percent contraction in fourth-quarter GDP came as a surprise. Analysts had been pencilling in modest growth of 0.2 percent and even the Bundesbank had only recently estimated that the German economy grew -- albeit fractionally -- in the last three months of 2004.
Destatis also revised downwards its previous estimate for third-quarter growth, calculating that GDP stagnated in the period from July to September, instead of growing by 0.1 percent as initially thought.
And in the wake of the lower-than-expected growth in the third and fourth quarters, Destatis also revised downward its estimate for full-year growth to 1.6 percent growth from 1.7 percent previously.
The decline in fourth-quarter GDP was attributable to falling domestic demand, which was only partially offset by a rise in the export surplus, the statistics office said.
News of the economic contraction will be all the more unwelcome in the face of unemployment, which currently stands at a post-war high of more than five million in Germany.
And the weak growth could torpedo the government's goal of bringing down its public deficit this year, which has exceeded EU limits for three years in a row.
Berlin, having pencilled in growth of 1.6 percent this year, insisted that key forward-looking indicators, such as the Ifo business climate index, the GfK consumer confidence index and manufacturing orders "all clearly suggest that the economic recovery will gather momentum in 2005."
That was backed up by the regular monthly investor confidence poll carried out by the ZEW think-tank in Mannheim.
ZEW's economic expectations index topped its highest level in five months in February, the results of the latest survey showed on Tuesday, with economic analysts and institutional investors taking heart from surging factory orders, stable oil prices and a stable euro.
Gernot Nerb, the chief economist of rival economic think-tank Ifo in Munich, also saw no reason for talk of a renewed recession in Germany.
"That's a dent in growth, not the start of a new downturn," Nerb told AFP in an interview.
The sharp 7.1-percent increase in factory orders in December alone would guarantee a pick-up in industrial output.
"And there's more in the pipline," Nerb said.
But analysts were more sceptical.
"There is no way to say anything positive about these (GDP) numbers," Bank of America economist Holger Schmieding said.
"If we accept the standard definition of recession as two consecutive quarterly declines in GDP, Germany only narrowly escaped a third recession within four years in late 2004."
Since mid-2000, the German economy has managed to grow in only seven out of 18 quarters, Schmieding calculated.
Morgan Stanley economist Annemarieke Christian said that the weak entry point into this year could shave around 0.4 percentage points off her forecast for growth this year, leaving full-year growth at just 0.7 percent.
"However, indications from the surveys so far this year suggest that the first quarter may be slightly stronger than expected. We're pencilling in (first-quarter) growth of 0.3 percent so far," she said.
Exane BNP Paribas economist Emmanuel Ferry said he was now forecasting full-year growth of 0.8 percent for 2005, down from 1.0 percent previously.
Capital Economics analyst Julien Seetharamdoo said the disappointing German data, coming on the same day as Europe-wide statistics which showed a slowdown in growth for the euro area as a whole at the end of last year, will "add to pressure on the European Central Bank to keep rates on hold for a long time yet."
LINK: http://www.nst.com.my/Current_News/NST/AfpNews/200502160106071108487167.85/indexb_html
German economy teeters on edge of new recession at end of 2004
The German economy, the biggest in the 12-country eurozone, was teetering on the edge of its third recession in just four years at the end of 2004, but the outlook for this year is brighter with investor confidence on the rise, data showed.
The German economy, the biggest in the 12-country eurozone, was teetering on the edge of its third recession in just four years at the end of 2004, but the outlook for this year is brighter with investor confidence on the rise, data showed.
German gross domestic product (GDP) unexpectedly shrank by 0.2 percent in the last three months of 2004, after notching up zero growth in the previous quarter, the federal statistics office, Destatis, calculated.
Recession is technically defined as two consecutive quarters of negative growth, meaning that the German economy only narrowly escaped another recession in the second half of 2004.
The German economy was last in recession in the second, third and fourth quarters of 2001 and then from the fourth quarter of 2002 to the second quarter of 2003.
The 0.2-percent contraction in fourth-quarter GDP came as a surprise. Analysts had been pencilling in modest growth of 0.2 percent and even the Bundesbank had only recently estimated that the German economy grew -- albeit fractionally -- in the last three months of 2004.
Destatis also revised downwards its previous estimate for third-quarter growth, calculating that GDP stagnated in the period from July to September, instead of growing by 0.1 percent as initially thought.
And in the wake of the lower-than-expected growth in the third and fourth quarters, Destatis also revised downward its estimate for full-year growth to 1.6 percent growth from 1.7 percent previously.
The decline in fourth-quarter GDP was attributable to falling domestic demand, which was only partially offset by a rise in the export surplus, the statistics office said.
News of the economic contraction will be all the more unwelcome in the face of unemployment, which currently stands at a post-war high of more than five million in Germany.
And the weak growth could torpedo the government's goal of bringing down its public deficit this year, which has exceeded EU limits for three years in a row.
Berlin, having pencilled in growth of 1.6 percent this year, insisted that key forward-looking indicators, such as the Ifo business climate index, the GfK consumer confidence index and manufacturing orders "all clearly suggest that the economic recovery will gather momentum in 2005."
That was backed up by the regular monthly investor confidence poll carried out by the ZEW think-tank in Mannheim.
ZEW's economic expectations index topped its highest level in five months in February, the results of the latest survey showed on Tuesday, with economic analysts and institutional investors taking heart from surging factory orders, stable oil prices and a stable euro.
Gernot Nerb, the chief economist of rival economic think-tank Ifo in Munich, also saw no reason for talk of a renewed recession in Germany.
"That's a dent in growth, not the start of a new downturn," Nerb told AFP in an interview.
The sharp 7.1-percent increase in factory orders in December alone would guarantee a pick-up in industrial output.
"And there's more in the pipline," Nerb said.
But analysts were more sceptical.
"There is no way to say anything positive about these (GDP) numbers," Bank of America economist Holger Schmieding said.
"If we accept the standard definition of recession as two consecutive quarterly declines in GDP, Germany only narrowly escaped a third recession within four years in late 2004."
Since mid-2000, the German economy has managed to grow in only seven out of 18 quarters, Schmieding calculated.
Morgan Stanley economist Annemarieke Christian said that the weak entry point into this year could shave around 0.4 percentage points off her forecast for growth this year, leaving full-year growth at just 0.7 percent.
"However, indications from the surveys so far this year suggest that the first quarter may be slightly stronger than expected. We're pencilling in (first-quarter) growth of 0.3 percent so far," she said.
Exane BNP Paribas economist Emmanuel Ferry said he was now forecasting full-year growth of 0.8 percent for 2005, down from 1.0 percent previously.
Capital Economics analyst Julien Seetharamdoo said the disappointing German data, coming on the same day as Europe-wide statistics which showed a slowdown in growth for the euro area as a whole at the end of last year, will "add to pressure on the European Central Bank to keep rates on hold for a long time yet."
LINK: http://www.nst.com.my/Current_News/NST/AfpNews/200502160106071108487167.85/indexb_html
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