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Germany falls into recession

AFP/DDP/The Local · 13 Nov 2008, 10:30

Published: 13 Nov 2008 10:30 GMT+01:00

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The world’s leading exporter suffered a 0.5 percent contraction in the third quarter, Destatis reported. Second quarter reports showed gross domestic product shrinking by 0.4 percent, which means the country is officially in a technical economic recession after two consecutive reductions in GDP.

Dow Jones analysts had predicted a much lower contraction of 0.1 percent in the third quarter.

On Wednesday, the country's panel of top economists warned that growth would likely stagnate in the coming year, criticizing government plans to back the economy with a several-billion-euro package of tax breaks and state investments. They also predicted a rise in unemployment over the next year.

Germany has suffered slowing economic activity as domestic consumption slumps and exports decline in the wake of the global financial crisis.

Destatis on Thursday said a major factor in the decline was that the world's leading exporter posted a net negative export figure as imports showed considerable gains.

German economic activity had got off to a good start in 2008, expanding by 1.4 percent in the three months to March. But the country has been hit by slumping activity in its major export markets while domestic consumption has remained at low levels. Corporate investment has suffered as well from a sharp decline in the business outlook.

In October, German business confidence hit its lowest point in more than five years, a widely-watched survey by the Ifo research institute showed. Industrial orders, a key leading indicator, plunged in September by eight percent, the steepest drop since Germany was reunited in 1990.

Berlin has slashed cut its forecast for 2009 growth to just 0.2 percent and on Wednesday a panel of experts advising the government said it expects a standstill next year.

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Bank of America senior economist Holger Schmieding warned that "late 2008 and early 2009 could well be worse. Germany - and the eurozone - have to get ready for a serious recession."

Capital Economics research group said as the German data was published that "the world economy is heading for the worst recession since the 1930s" and the Organisation for Economic Cooperation and Development (OECD), the club of the world's 30 richest nations, said the industrialised powers appear to be in a "protracted downturn" with the US, Japanese and European economies likely to shrink next year.

AFP/DDP/The Local (news@thelocal.de)

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