German Economy Slows Sharply as Crisis Hits Home
German gross domestic product (GDP) shrunk sharply in the last quarter of 2012, according to first estimates by the country's Federal Statistics Office. The government forecast fourth quarter GDP fell by 0.5 percent, marking a weaker close to 2012 than previously thought.
"This would be the largest quarterly fall since first quarter 2009 and would provide further evidence that the euro zone economy contracted sharply in the fourth quarter," Ben May, European economist at independent research firm Capital Economics, said in a note.
The newly released numbers suggest German GDP grew by 0.7 percent in 2012.Capital Economics had previously forecast growth of 0.8 percent for 2012.
The figures are seen as a disappointment after Germany's robust 3 percent growth in 2011 and suggests the "strong man of Europe" may not be resilient to the impact of the euro zone debt crisis.
ING Senior Economist Carsten Brzeski said the region's crisis was now weighing on Germany in the form of slowing exports and delayed investments.
"If the German economy was a text book example of a closed economy, it would still be an island of happiness. Record high employment, solid consumption wage increases and a housing boom could have made 2012 another boom year," Brzeski said in a note on the German economy.
"Unfortunately, the slowdown of exports in the second half of the year and delayed investments (despite record low interest rates) due to uncertainties surrounding the euro crisis weighed on growth."
According to the the Organisation for Economic Co-operation and Development (OECD), net exports were the main driver of German growth in the third quarter of 2012, constituting 30 percent.
May warned that exports for Germany and other euro zone countries were likely to remain subdued in the near time.
"The negative effects of the five percent or so rise in the trade-weighted exchange rate since late November will not have been fully felt by exporters just yet. Accordingly we remain skeptical that exporters are in a position to pull the euro zone out of its current recession on their own," he said.
More positively, Brzeski said domestic investment could prove a "growth wildcard" for Germany in 2013.
"Financing conditions have never been more accommodative in Germany than at present and in addition, many companies increased their cash positions last year. If uncertainties surrounding the euro crisis and the global economy ebb away further, pent-up investment could become an important growth driver," she said.
On Tuesday, German business daily Handelsblatt reported the government had cut its growth forecast for 2013 to 0.5 percent, down from the previously reported 1.0 percent. Handelsblatt cited a report due to be published after cabinet discussions on Wednesday.
(Read More: German Government Cuts 2013 Growth Forecast: Report)
However, a government source told Reuters the 2013 forecast had not yet been set, and would not be published until after Wednesday's discussions.
Handelsblatt said the government report stated that German growth should accelerate, after a slow start, to reach 1.25 percent year-on-year in the final quarter of 2013.
The level of unemployment is not expected to change much in 2013, Handelsblatt said, with the number of jobless seen rising by just 60,000 on the previous year, to 2.95 million.
Unemployment stood at 6.9 percent in December, with 2.942 million people out of work.
- Reuters contributed to this report