German economy shrinks at end of 2011

The eurozone debt crisis brought the German economy, Europe's biggest, to a standstill at the end of last year, data showed Wednesday - but the pause in growth will prove only temporary, analysts said.

German economy shrinks at end of 2011
Photo: DPA

According to preliminary figures from the national statistics office, Destatis, gross domestic product (GDP) contracted by 0.2 percent in the fourth quarter of 2011 compared with the preceding three months.

That was fractionally better-than-expected – analysts had been pencilling in a contraction of around 0.3 percent.

Furthermore, third-quarter growth was revised upwards slightly to 0.6 percent quarter-on-quarter, compared to an original estimate of 0.5 percent.

A precise breakdown of the growth data will be published next week but exports — traditionally the engine of the German economy — appeared to have been hit by the long-running debt crisis in the single currency area.

“The German economy suffered a small setback at the end of 2011,” Destatis said in a statement.

“Foreign trade had a negative effect on the economy in the final quarter of 2011. But consumer spending also declined slightly.”

The only positives came from investment on a quarter-on-quarter basis in the period from October to December, with construction investment, in particular, much higher than in the third, Destatis said.

Last month, the statistics authority had estimated that GDP likely contracted by around a quarter of percentage point in the fourth quarter as the debt crisis slammed the brakes on growth.

Nevertheless, taking 2011 as a whole, the German economy grew by a robust 3.0 percent after growing by a record 3.7 percent in 2010.

Analysts predicted that the lull in growth at year-end would likely be short-lived.

The dip in GDP was “not as deep as expected, confirming that the German economy only took a growth pause and is not approaching a new recession,” said Carsten Brzeski, economist at ING Belgium.

“Of course, a quick rebound is not (automatic) and the big unknown for the German economy remains the sovereign debt crisis. One thing, however, is obvious — today’s numbers are no reason at all to start singing swan songs on the German economy,” Brzeski said.

Among the reasons pointing to an early return to growth was the low risk of a credit crunch, the analyst argued.

Contrary to many European peers, German banks have not tightened lending conditions, at least for now, he said.

Low inventories and a still high backlog of orders would act as “an important safety net for industry, ensuring production even if demand for German products would weaken,” he said.

Many of Germany’s most important trading partners are outside the eurozone so exports could benefit from a pick-up elsewhere even if Europe slips into recession.

Brezeski added, that a sound labour market would ensure that domestic demand, which has actually taken over from exports as the main driver of growth, would remain strong.

Annalisa Piazza at Newedge Strategy also believed the fourth-quarter GDP data was “a touch less gloomy than expected.”

It was “the first contraction in activity since early 2009 and — in our view — just a one-off event,” the analyst said, predicting a “modest improvement already in the first half.”

The “solid structure of the economy is acting as a cushion to external shocks and there are no major risks of a deep recession,” she said.

UniCredit economist Alexander Koch agreed.

“The latest broad-based weakness in the official figures does not herald another negative quarter or even a deeper recession,” he said.

Although downside risks from the debt crisis persist, and the recent very cold winter weather could also weigh on growth in the first quarter.

“We’re sticking to our quarterly growth path for this year, with an increase of 0.2 percent in the first quarter and a further moderate pick-up afterwards,” Koch said.


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7 tips for how to survive as a freelancer in Germany

Taking the decision to go it alone and freelance in Germany can be a daunting prospect. But, if you do it right, it can be an exciting and liberating path. Here are some of our top tips on how to survive.

7 tips for how to survive as a freelancer in Germany

1. Get a tax advisor

The German tax system is complicated, even for Germans. All the associated paperwork uses the Amtsprache (authority language) which is more like legalese than ‘normal’ German, and mistakes when filling out tax forms can cause you, at best, a massive headache and, at worst, a costly fine. So it’s best that you employ someone who knows what they’re doing to help you out.

That person is called a Steuerberater (tax advisor) in Germany. They will help you register with the tax office, correspond with them and submit your tax declarations.

Be aware that, in Germany, different deadlines apply for tax returns depending on whether you employ an official tax advisor or not. If you are doing the tax return on your own, the deadline for submitting your annual tax return is earlier than if you use a tax advisor’s services. 

READ ALSO: What NOT to do when you’re freelancing in Germany

When looking for a tax advisor, a top tip is to use your network to get recommendations. Ideally, you want someone who will do more than just fill in the forms for you, but who will actually advise you on how best to manage your business finances so that you can make tax savings.

2. Keep your accounting in order

The better you keep your own accounts in order, the easier it will be for your tax advisor to compile your tax declarations and therefore the cheaper their services will be.

As a freelancer, there are a lot of costs you can deduct from your taxes – from train tickets, working materials, to meals out – so it’s best to keep hold of all your receipts and to keep them in good order.

2 euros and 50 cents lie on a receipt in a beer garden. Photo: picture alliance/dpa | Peter Kneffel

In Germany, you’re obliged to keep hold of receipts for two years, in case of a tax inspection, so it’s a good idea to photocopy the type of machine-printed receipts you get from restaurants so that they stay legible for a long time.

There are also a few things to be aware of when writing your own invoices. Firstly, make sure that you include your tax number. This isn’t the 11-digit Steueridentifikationsnummer that everyone gets when registering in Germany, but the 10-digit Steuernummer you get from the Finanzamt after registering yourself as a freelancer. 

Most companies won’t pay you if you don’t have this on your invoices so make sure you include it.

You should also make sure that you number your invoices properly – ideally in ascending order so that you can easily keep track of them. You are not allowed to issue two invoices with the same number and if you do so and the finance office notices, you could face an inspection of your whole accounting system.

There are numerous great accounting software programmes you can use to help you, such as Lexoffice and Sevdesk and, even if you have to pay for them, the costs will be tax deductible!

3. Find out if you’re eligible for financial support

In Germany, there are several opportunities for freelancers to gain financial support and to cut their outgoings, and its worth finding out if you’re eligible for them.

If you’re claiming unemployment benefits under ALG 1 and are thinking about becoming a freelancer, the employment office offers a special type of financial support to help you to get your freelance business off the ground.

Called the Grundungszuschuss (“foundation grant”) the payment is a six-month grant equalling your monthly entitlement under ALG 1 plus €300 towards your insurance costs can be applied for those in receipt of this unemployment benefit.

READ ALSO: Will freelancers benefit from Germany’s €300 energy allowance?

If you are engaged in some form of artistic profession in Germany – which can include journalism to pottery – you may be entitled to membership to the Kunstlersozialkasse (artists’ social insurance).

Being a member of the KSK means you only have to pay half of your health insurance and pension contributions, and the KSK will pay the rest.

4. Work out how much you think you will earn

As with starting any business, you need to have some idea of your expected earnings from the outset.

If you’re just starting out as a freelancer, or have some freelance gigs on the side of an employment position, then it might be worth considering registering yourself as a Kleinunternehmer (“small business”).

As a Kleinunternehmer, you can currently earn up to €22.000 per year without having to charge VAT and having to submit only yearly tax declarations. 

An income tax declaration form lies on a table. Photo: picture alliance/dpa/dpa-Zentralbild | Hans-Jürgen Wiedl

Be aware that if you are registered as this kind of freelancer, you must include the following sentence in your invoices: ‘Gemäß § 19 UStG wird keine Umsatzsteuer berechnet’ which means ‘In accordance with Paragrah19 of the German VAT law, no VAT has been added to this invoice.’

READ ALSO: Everything you need to know about your German tax return in 2022

If you think you will earn more than €22.000 per year, you will need to pay Umsatzsteuer (VAT) and will have to submit tax declarations in advance and more often. Depending on how much you earn, this could be every month or every quarter. 

5. Get your insurance in order

In Germany, it’s a legal requirement to have health insurance.

If you’ve just made the move from employment to being a freelancer and want to keep the same health insurer, you should get in contact with your health insurance provider straight away to tell them about your change of circumstances. They will ask you to re-register and to tell them your projected freelance earnings for the year, so they can amend your monthly fees.

If you don’t keep your health insurer provider updated, you could continue to be charged the higher rate that you had from your previous salary.

The insurance cards of the health insurance companies DAK, AOK, Barmer and Techniker-Krankenkasse TK lie with euro notes under a stethoscope. Photo: picture alliance / dpa | Daniel Karmann

It’s not just health insurance you need to think about as a freelancer. It’s also wise to think about protecting yourself from any sort of claims that could arise as a result of any working mishaps. 

If, for example, you lose your laptop which contains confidential client information, you need to be protected against claims.

That’s why it’s good to have both Betriebshaftversicherung (business liability insurance) and Rechtschutzversicherung (legal protection insurance).

6. Plan your time wisely

All of these bureaucratic obligations take time. So it’s really important that you take account of that when planning your time. For example, planning half a day a week to deal with your invoices, filing, emails to clients, and conversations with authorities can be really beneficial when scheduling your working time. 

7. Grow your network

As a freelancer, networking is absolutely crucial to success. 

Keep an up-to-date profile on websites like LinkedIn and German equivalent XING and keep in contact with anyone you’ve ever worked with, no matter how brief the contact was. 

Having a network is not only about getting more clients, but also about building a support network in your field to exchange advice, tips and generally for your own enrichment. 

Participating in workshops related to your field, going to seminars, and meet-ups, can be great ways of broadening your network.