German Growth Slows to 0.7% in 2012 as Eurozone Crisis Continues

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Researched by Industrial Info Resources (Sugar Land, Texas)--The German economy, the growth engine for the eurozone amid the ongoing European economic crisis, has stalled. According to figures from the country's Federal Statistics Office, the growth rate for full-year 2012 was only 0.7%, which was lower than market expectations of 0.8%. The growth rate was 3% in 2011. The data for fourth-quarter 2012 will be released on February 14.

The weak growth rate in the fourth quarter is in line with recent developments in industrial production and factory orders, with sentiment indicators only pointing to a gradual recovery in confidence.

The largest contribution to growth in 2012 came from net exports, which added some 1.1% points to growth rate. Private and public consumption made positive contributions, while machinery investment and stocks were negatives. This resulted in domestic demand being down 0.3% in 2012. In addition, inventories were also a strong drag on growth, with -0.5 percentage points.

"We continue to see growth of 0.3% in 2013, which will be lower than 2012 due to a statistical under-hang resulting from a negative fourth-quarter 2012 and a slow start into the year," said Olivier Rakau, an economist at Deutsche Bank in Frankfurt. "If uncertainties surrounding the euro crisis and the global economy ebb away further, pent-up investment could become an important growth driver."

Despite weaker gross domestic product (GDP) growth and rising costs from the euro area debt crisis, Germany managed to achieve a budget surplus of 0.1% of GDP in 2012. The surplus is the first since 2007 and follows a deficit of 0.8% in 2011. With this surplus, the German government has already reached a balanced budget four years before the official start of the legally-binding debt brake.

"The German economy might not be an island of happiness any longer, but it remains at least an island of growth in a still recessionary eurozone sea," said Carsten Brezski, a senior economist at ING in Brussels.

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