German Confidence Soars as Economy Recovers

German Confidence Soars as Economy Recovers

GDP grew by 0.5% in the first quarter of 2012 and then by 0.3% in the second quarter and 0.2% in the third quarter.With the contraction of 0.6% in the fourth quarter, the economy expanded by just 0.7% across the whole of 2012 -- or 0.9% in calendar-adjusted terms.

FRANKFURT -- A contraction in the German economy at the end of last year was a hiccup, analysts said on Friday, as data showed business confidence in Europe's economic powerhouse soaring this year.

The federal statistics office Destatis confirmed an earlier estimate that German gross domestic product (GDP) contracted by 0.6% in the final quarter of 2012, weighed down by a 2% slump in exports.

Economic growth in Germany slowed throughout all of last year as the eurozone debt crisis put the brake on exports.

GDP grew by 0.5% in the first quarter of 2012 and then by 0.3% in the second quarter and 0.2% in the third quarter.

With the contraction of 0.6% in the fourth quarter, the economy expanded by just 0.7% across the whole of 2012 -- or 0.9% in calendar-adjusted terms.

Nevertheless, a whole range of experts -- from analysts to economic think-tanks, the government and even the Bundesbank -- are convinced that the dip in growth will prove only temporary and GDP will start growing again as early as the first quarter of 2013.

Economic sentiment in Germany could hardly be better. Earlier this week, the key ZEW barometer of investor confidence rose to levels last seen before the start of the three-year-old debt crisis.

And on Friday, the even more closely watched Ifo business climate index notched up its strongest gain in two and a half years to hit its highest level since April 2012.

"The German economy is regaining momentum," said Ifo president Hans-Werner Sinn as his institute's index jumped by 3.1 points to 107.4 points in February.

"Satisfaction with the current business situation continued to grow. Survey participants also expressed greater optimism about their future business perspectives," Sinn said.

IHS Global Insight economist Timo Klein said that improvements in all key sentiment indicators -- the purchasing manager index or PMI, Ifo and ZEW -- "all point to a rapid GDP recovery in early 2013."

And he suggested worries about the negative effects of the strengthening euro were misplaced.

"Despite having strengthened modestly since September 2012, the euro is still at quite competitive levels for Germany's export industry. This is helping additionally at a time when demand in countries such as the U.S. and China is picking up again," Klein said.

Overall, IHS Global Insight is projecting that year-average German GDP growth will be 1% in 2013 and 1.4% in 2014," the analyst added.

Destatis also said Germany's public finances were back in the black for the first time in five years, with the overall public budget showing a surplus of 4.2 billion euros (US$5.6 billion) for 2012.

Measured against GDP of 2.644 trillion euros for the year as a whole, that represented a surplus ratio of 0.2%, slightly higher than a preliminary estimate of 0.1% released in January.

It is the first time since 2007 and only the third time since unification in 1990 that Germany's finances have been in the black, the statistics authority said.

Under EU rules, member states are not allowed to run up deficits in excess of 3% of GDP.

In 2011, Germany's finances had been in the red with a deficit equivalent to 0.8% of GDP.

-Simon Morgan, AFP

Copyright Agence France-Presse, 2013

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