Germany’s economy shrank in the final quarter of 2011 as the euro debt crisis damped demand for its goods. Tuesday’s report is the latest to suggest that a second quarter of contraction — the technical definition of recession — may have been averted as companies tap faster-growing Asian markets. Factory orders gained a better-than-forecast 2.2 percent in March and business confidence rose to a nine-month high in April.
“The debt crisis damps demand for German products in Europe, but Russia, China, India, Brazil and South Africa should generally be able to compensate declining sales,” said Gerd Hassel, an economist at BHF Bank AG in Frankfurt. “Germany’s recovery is also based on strong domestic demand as high employment, rising wages and increasing investment fuel consumption and industrial output.”
German stocks fell as the leader of Greece’s largest political party failed to form a government after last weekend’s election, boosting speculation the nation might leave the euro. Germany’s benchmark DAX stock index sank 1.9 percent to 6,444.74 at the close of trading in Frankfurt, its lowest level since Jan. 30.
Production of investment goods rose 2 percent in March and consumer goods increased 3 percent, Tuesday’s report shows. Construction activity surged 30.7 percent after a 16.9 percent slump in February due to cold winter weather.
The Economy Ministry said first-quarter production matched output in the fourth quarter. “Industrial activity is gathering pace and the outlook has improved markedly,” it said.
Germany’s top three carmakers and their suppliers have benefited most from thriving demand in China, with first-quarter profits at Bayerische Motoren Werke, Volkswagen and Daimler all beating analyst estimates.
At the same time, companies from Hugo Boss to Beiersdorf are profiting from increased consumer spending.
With unemployment at the lowest level since reunification, German workers are securing some of the biggest wage increases in two decades. By contrast, joblessness in the 17-nation euro region rose to a 15-year high in March and manufacturing contracted for a ninth month, adding to signs that the economic slump is deepening.
Italian manufacturing output has been contracting since August, and Spanish industrial production slumped 10.4 percent in March from a year earlier.
“Demand from China is not going to entirely offset the weakening demand from the region’s periphery,” said Jens Sondergaard, senior European economist at Nomura International in London. “When you have the third- and the fourth-largest economies of the euro area in a free fall in terms of industrial production, it is unlikely that Germany can decouple from the other euro-area countries’ economic cycle.”
The International Monetary Fund forecasts that the euro economy will contract 0.3 percent this year, compared with projected expansions of 2.1 percent in the United States and 7.3 percent in developing Asia. It predicts 0.6 percent growth in Germany.
European Central Bank President Mario Draghi left open the door last week for more stimulus if the debt crisis continues to weaken the euro-area economy.
“We saw stabilizing economic activity at low levels in the first three months” of the year, Draghi said after policymakers kept interest rates at a record low on May 3. “The most recent survey indicators show uncertainty prevailing.”
— Bloomberg News