German Recession May Have Ended in Second Quarter

The German economy may have exited a recession in the second quarter of this year, a senior government official said on Thursday, just as trade data showed exports making a tentative recovery in May.

Germany, Europe's largest economy, suffered a 3.8 percent contraction in the first quarter and is facing its deepest post-war recession this year, but a 0.3 percent rise in exports in May chimed with other data pointing to a recovery.

"Gross domestic product could have been flat or may have even grown very slightly in the second quarter," the government official told Reuters, speaking on condition of anonymity.

"This isn't an upswing yet, it's a normalization after the big economic slump," the official said.

Figures from the Federal Statistics Office, released earlier on Thursday, showed Germany's trade surplus widened unexpectedly in May to 10.3 billion euros ($14.3 billion) from 9.0 billion in April, hitting its highest level since December 2008.

Germany has been the world's biggest exporter of goods since 2003, though the first-quarter drop in GDP was marked by a 9.7-percent slump in exports that has left the economy reeling.

The rise in the trade surplus backed up other data this week suggesting a recovery may be starting to take hold.

May industry figures showed output growing at its fastest rate in 16 years, while orders surged to a near two-year high.

"The orders rise from the last three months will feed through with a delay, suggesting exports will rise in the coming months even though an export boom is not in sight," said Juergen Michels from Citigroup.

Exports rose 0.3 percent in May to 63 billion euros, the seasonally adjusted data showed.

"We can't talk about a change in trend. But the free fall (in exports) appears to have stopped," said Barclays Capital economist Thorsten Polleit. "This gives hope that exports will rise in the coming months."

Imports fell 2.1 percent on the month to 52.7 billion euros, their lowest level since July 2005.

Economists surveyed by Reuters had forecast the trade surplus to hold steady at 9.0 billion euros.

Imports were seen up by 0.8 percent month-on-month and exports were expected to rise 1.5 percent.

Positive Signs

Despite May's lower-than-expected export rise, economists saw the figures as a positive sign that a bottom had been reached at a time when some German companies have been expressing confidence in the manufacturing sector.

"It is far too early to declare the return of Germany's growth engine but one thing is for sure: there is life in the old dog yet," said Carsten Brzeski from ING Financial Markets.

With measures of investor and corporate sentiment rallying in recent months, hopes have started to crystallize that the economy could stage at least a timid recovery.

An industry group reported last week that German auto sales rose 40 percent in May, spurred by government scrappage incentives.

Positive signs also came from abroad, as Volkswagen — Europe's largest automaker — said last month it had outperformed its competitors in May thanks to rising sales not only in Germany, but also in China.

The Federal Statistics Office is due to give a preliminary estimate of second quarter GDP on August 13.

The DAX index was up 1.2 percent by midday.

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