Thursday, February 14, 2013

German GDP drops 0.6% QoQ in 4Q 12

Contraction confirmed. As expected, the German statistical agency just confirmed the biggest contraction of the German economy since Q1 2009. The economy contracted by 0.6% QoQ in the last quarter of 2012, slightly more than expected. Detailed components will only be released next week but according to the press statement of the statistical agency, construction, investment and, above all, exports dropped in the fourth quarter, while private and public consumption increased.

With increased uncertainty stemming from the euro crisis and the global economic cooling in the second half of the year, the German economy has finally lost its invincibility. Looking ahead, however, there is increasing evidence that the economy should pick up speed again very quickly. Confidence indicators have improved over the last three months and this new optimism is not only wishful thinking. The increase of new orders is again feeding the economy’s industrial growth engine. Moreover, the industrial safety net of filling order books and inventory reductions has improved, boding well for industrial production in the months ahead. Finally, if the lower-risk environment continues, record-low interest rates should support an investment rebound, contributing to growth in 2013.

All in all, even if today’s numbers are disappointing, they are no reason to start singing the blues on the German economy. The contraction should be a temporary gaffe rather than a new worrying reality.

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