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German consumers keep recession at bay

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German consumers keep recession at bay
Photo: DPA
08:57 CEST+02:00
Buoyant consumer confidence and increased household spending is keeping Germany, Europe's biggest economy, from recession, despite sagging exports and falling investment, data showed on Friday.

The federal statistics office Destatis calculated in final data that Germany's gross domestic product (GDP) notched up anaemic growth of 0.1 percent in the period from January to March, with only consumer spending in positive territory.

The data - which confirm a preliminary estimate already published earlier this month - showed that the German economy has successfully skirted a recession following a sharp contraction of 0.7 percent in the previous quarter.

A recession is technically defined as two consecutive quarters of economic

contraction.A breakdown showed that out of the different GDP components only private consumer spending was positive, growing by 0.8 percent.

Public-sector spending slipped by 0.1 percent, investment tumbled 2.4

percent, imports were down 2.1 percent and exports contracted by 1.8 percent,

the statisticians calculated.

As stated earlier this month, Destatis blamed the unexpectedly weak start to the year to the "extreme winter weather conditions."

Nevertheless, experts and economists are confident that economic activity will gather momentum as the year progresses. A key survey of consumer confidence suggested that German households are not letting forecasts of a eurozone-wide recession sour their optimism.

The GfK institute's monthly consumer confidence index is forecast to rise to 6.5 points in June from 6.2 points in May.

GfK attributed to robustness to "the favourable and stable framework conditions in Germany. The high level of employment, favourable wage agreements and slowing inflation are buoying sentiment," it said.

Both economic and income expectations increased and consumers' willingness

to spend "impressively held its already high levels".

The headline consumer confidence reading is based on responses from about

2,000 households regarding their expectations about pay and the economy as a

whole in the coming months, as well as their willingness to spend money.

Earlier this month, the widely-watched ZEW investor confidence index stabilised following a sharp decline the previous month thanks to the European Central Bank's decision to cut interest rates.

The latest Ifo business climate index - an even more important barometer

of sentiment in Europe's biggest economy - is scheduled to be released later

on Friday.

Berenberg Bank economist Christian Schulz said that "Germany's consumers

are riding to the rescue."

"Private consumption drove the return to growth in the first quarter," he said.

"With the euro crisis fading from the headlines, strong fundamentals such

as low unemployment, rising wages and low inflation are starting to have their

'normal' effect. And more growth is in store," the expert predicted.

"In 2013, Germany will have to rely largely on domestic demand for growth,"

Schulz said.

"With consumption showing signs of strength and some bounce-back in

investment after the long winter, the outlook for domestic demand is

brightening," he said.

At the same time, the outlook for exports remained clouded despite signs of stabilisation in the eurozone, since competition from Japan and temporary weakness in China and the United States were weighing on prospect, he warned.

AFP/jlb

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