German Economy Contracts More Than Expected In Q4

(RTTNews) - The German economy posted the biggest quarter-on-quarter contraction since its reunification in 1990 in the final three months of 2008.

Friday, the Federal Statistical Office said gross domestic product, or GDP, contracted 2.1% in the fourth quarter from the previous three months. The economy shrank 0.5% each in the second and third quarters of 2008. Economists were expecting a decline of 1.8% for the fourth quarter.

The price-adjusted GDP was down 1.6% annually in the fourth quarter compared to an increase of 1.4% in the third quarter. Meanwhile, calendar-adjusted GDP dropped 1.7% from the same quarter of the previous year, following an increase of 0.8% in the third quarter.

Chief Economist at Commerzbank, Jï¿½rg Krï¿½mer said, “The Lehman failure gave the German economy an uncertainty shock, and in the first quarter German GDP is likely to see another dramatic contraction.”

The statistical office said the negative influence on the GDP was exerted especially by fixed capital formation and by the balance of exports and imports. Final consumption expenditure was slightly smaller than in the prior quarter mainly due to final consumption expenditure of households. Inventories were markedly up in the fourth quarter.

Economic recession in the biggest Eurozone economy is expected to deepen in the current year. The German government is expecting the economy to shrink by 2.25% in 2009, which would be its worst performance since World War II. The International Monetary Fund forecast a 2.5% contraction in 2009.

Leading economic indicators also point further slowdown in the economy. Exports declined for the third straight month in December and manufacturing turnover dropped. Industrial output dropped at record pace after orders plunged. As a result of deepening economic downturn, unemployment continued to rise in January.

Citing recent weakness in a number of risk indicators like, credit premiums in the money market, issuance activity in the corporate bond market, Krï¿½mer said German GDP might at least stop contracting after mid-year if this tendency continues.

The Federal Statistical Office is set to release more detailed results on February 25.

For comments and feedback: contact editorial@rttnews.com

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