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Germany Slowdown? Not Anymore, Say Analysts

Reichstag building, Germany.
James Emmerson | Robert Harding World Imagery | Getty Images
Reichstag building, Germany.

After a slowdown in the fourth quarter of 2012, Germany's economy seems to be getting back on track and some analysts now believe Europe's largest economy will go from strength to strength in 2013.

"The German economy is bouncing back. Unemployment is still low, market data and business confidence surveys show Germany is strong and the retail sales, which were weak, were a blip," Christian Schulz, senior economist at Berenberg Bank told CNBC.com.

Government statistics released earlier this month showed gross domestic product (GDP) in the fourth quarter contracted by 0.5 percent over the previous three months, weaker than most economists had expected.

(Read more: Germany Economy Slows Sharply as Crisis Hits Home)

However, German Purchasing Managers Index (PMI) data for January showed the private sector had expanded at its fastest pace in a year, in contrast to France's PMI which showed a deepening downturn.

Unemployment data released on Thursday showed the jobless rate unexpectedly dropped, whereas elsewhere in the currency bloc unemployment remains stubbornly high.

The real thorn in the euro zone's side appears to be Spain where record unemployment figures and a worsening recession have seen bailout fears re-emerge. Earlier this week Spain's GDP fell 1.8 percent in the fourth quarter from a year earlier, preliminary data from the National Statistics Institute showed.

Schulz added that even a stronger euro – the currency rose to a 14-month highs against the dollar this week – would be unlikely to hurt the Germany economy.

"German exporters are used to a stronger currency and [it] has traded well even when the euro has been at $1.60, so I don't think a euro at$1.40 is a critical barrier for Germany."

(Read more: Germany Can Lead Euro Zone Out of Recession)

In recent months the euro crisis has eased after the European Central Bank President Mario Draghi promised to buy unlimited amounts of sovereign bonds.

"A normalizing risk environment will help the German economy start growing again as businesses dust off delayed investment plans and households start to spend a little more. In addition, a re-acceleration in the U.S. economy and emerging markets should give exports a boost," Carl Attori, economic advisor at Ernst & Young told CNBC.com.

"As it becomes clear to consumers that the risk environmenti s normalizing, fear of unemployment will fall and consumer spending will rise," he added.

Thomas Harjes, director and chief economist at Barclays in Germany, agreed that the country was headed for better times ahead.

"For 2013, and in contrast to the consensus, we predict stronger growth of 1.2 percent for the German economy, as fiscal headwinds fade and global growth picks up. Private investment should expand again as riskaversion and uncertainty relating to the euro area crisis and other global risks diminish gradually," Harjes said.

Striking a note of caution to the upbeat picture was Roger Nightingale, economist at RDN Associates, who said it was "extremely unlikely"that the German economy had genuinely recovered.

"Germany has had twenty years where it's performed very badly and in the last couple it's done very well, by comparison. But [that's]not a great record," he said.

Contact Europe: Economy

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