Record German GDP Contraction Led by Exports

Record falls in exports and investment made the German economy shrink in the first quarter at its fastest pace since reunification in 1990, data showed on Tuesday, though consumer spending helped to soften the blow.

Confirming preliminary estimates from earlier this month, the Federal Statistics Office said German gross domestic product (GDP) shrank by 3.8 percent quarter-on-quarter and by 6.7 percent year-on-year during the January-March period.

The quarterly and annual declines in GDP were the biggest since German reunification, and a breakdown of the figures showed that Europe's largest economy had been dragged down by record decreases in exports and investment.

"The only good thing about today's GDP numbers is that they can now be filed away," said Carsten Brzeski, an economist at ING Financial Markets. "It can only get better."

"Recent indicators give hope that the worst is behind and that the free fall of the German economy is coming to an end."

Forward-looking indicators in recent weeks have suggested the pace of the downturn — which the government has forecast will cause the economy to shrink by a record six percent this year — has eased since the first quarter.

The Ifo institute's German corporate sentiment index rose for a second straight month in May, reaching a six month high.

This followed an improvement in the ZEW institute's gauge of analyst and investor sentiment, now at a near three-year high.

A separate report from the GfK market research firm on Tuesday showed German consumer sentiment should hold steady for a fourth month running going into June as growing worries over household finances are offset by a brighter overall outlook.

AP German factory worker

GfK's forward-looking consumer sentiment index, based on a survey of 2,000 Germans, held at 2.5 in June — the same reading that was confirmed for May and which it has held since March.

Weak Trade

Adjusted for working days, German GDP declined by 6.9 percent on the year in the first quarter, the Office said.

Exports fell by 9.7 percent quarter-on-quarter, while gross capital investment tumbled by 7.9 percent, the figures showed. By contrast, private consumption rose by 0.5 percent.

Net trade subtracted 2.2 percentage points from German GDP in the first quarter, and gross capital investment 1.5 points.

Economy Minister Karl-Theodor zu Guttenberg forecast last month that German GDP could contract by a further one percent in the second quarter, and many analysts believe it could take months for the economy to return to sustained growth.

However, Joerg Lueschow, an economist at WestLB, said a partial rebound could already be underway.

"I see a chance of us having growth again in the second quarter, but that would rather be a counter-movement to the slump at the beginning of the year," Lueschow said.

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