Germany hit by historic recession

January 13, 2010
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, WIESBADEN, Jan 13 – Modern Germany suffered its worst recession ever last year when Europe\’s largest economy contracted by five percent, provisional official figures released on Wednesday showed.

Economic activity declined for the first time in six years, as exports fell by 14.7 percent and business investment plunged by 20 percent, the Destatis national data service said in a statement.

The figure was the worst official figure recorded in Germany since the Great Depression, when annual output contracted by more than seven percent in 1931-32, it added in a report.

It was also five times the previous post-war record of minus 0.9 percent set in 1975, IHS Global Insight economist Timo Klein said, as UniCredit\’s Andreas Rees termed 2009 "the annus horribilis for the German economy."

Economic activity expanded in 2008 by 1.3 percent, Destatis said, and the central bank has estimated it should grow again by 1.6 percent this year.

"The economic slump occured essentially during the winter period of late 2008 and early 2009," Destatis president Roderich Egeler told a press conference. Business activity then "stabilised at a low level."

The government also posted a better-than-expected public deficit of 77.2 billion euros (112 billion dollars) last year, around 3.2 percent of output, after managing to balance its accounts in 2008, the data showed.

"The deterioration of public finances has been much more limited than in most other eurozone countries," ING senior economist Carsten Brzeski noted.

The European Union\’s Stability and Growth Pact holds EU members to deficits of no more than 3.0 percent of gross domestic product (GDP), and it was the first time in four years that Berlin exceeded the limit, Destatis said.

It is to release fourth-quarter and final 2009 growth figures on February 12.

This year, the finance ministry has estimated the deficit will exceed 5.0 percent of GDP as the government supports activity with stimulus measures that include tax cuts.

Government spending jumped by 2.7 percent in 2009, while household consumption gained a slight 0.4 percent.

German authorities have approved a stimulus package worth up to 21 billion euros in 2010, including 18 billion euros in tax relief for families.

The country\’s export-oriented economy was slammed by the global economic slowdown but should benefit from fresh emerging market demand for capital goods such as machine tools and chemicals used to produce finished products.

The economy ministry was upbeat Wednesday despite the historic slump, saying the worst had passed.

"It is particularly welcome that the labour market has remained surprisingly resistent," Economy Minister Rainer Bruederle said in a statement.

Unemployment has been limited by Germany\’s short-time work scheme under which the state subsidises shorter hours for workers to avoid widespread layoffs.

The number of jobless is nonetheless expected to reach more than 3.8 million people this year, after averaging 3.42 million, or 8.2 percent of the workforce, in 2009.

Brzeski warned the economy had to be rebalanced from a dependency on exports "towards more domestic driven growth," and concluded: "Not everything is hunky-dory."

Analysts reckon activity was weak in the fourth quarter of 2009, and Klein concluded that in general, "the loss in economic activity is so large that a return to the GDP level of first quarter 2008 is unlikely before end-2012 or even 2013."

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