German Economy in Reverse for First Time in Four Years

Accounting for about one third of the eurozone's output, the German economy shrank by 0.5%.

Raising fears that Europe's powerhouse might be headed for recession, the German economy, which accounts for about a third of eurozone output, shrank by 0.5% compared to performance in the first three months of the year, the statistics office said. And to make matters worse, the reading for growth in the first quarter was also revised downwards to 1.3% from the office's earlier estimate of 1.5%.

Other data released from Brussels on August 15 showed that Germany's partners in the eurozone were also suffering and that the 15-nation economy as a whole contracted for the first time since monetary union, by 0.2%.

Eurozone economies have been facing strong headwinds in recent months, not least the slowdown in orders for the bloc's exports as a result of weaker demand and a stronger euro, but also spiking energy and food prices. Germany looked to be weathering the storm surprisingly well, data earlier this year suggested, but more recently it has become clear that it cannot escape entirely unscathed. If Germany's economy now contracts in the third quarter -- July to September -- then it will be officially in recession. The last time German output fell back was in the third quarter of 2004, when it shrank 0.2%.

The economy ministry put a brave face on the figures, saying that the government fully expected a "technical correction" after the strong first quarter and sticking to its full year projection. "Turbulence in the financial markets, the rise in the price of oil and the fall of the dollar are making their mark on Germany," Economy Minister Michael Glos said, but the economy still put in a "very tidy performance."

Taken as a whole, the German economy expanded 0.8% in the first six months. Chancellor Angela Merkel's government is forecasting an expansion of around 1.7% for the whole year.

Figures also out on August 15 confirmed that inflation in Germany hit a 15-year-high of 3.3% high in July, driven by rampant energy and food prices.

Copyright Agence France-Presse, 2008

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