German economy stalls in third quarter

11th November 2004, Comments 0 comments

11 November 2004, BERLIN - German economic growth slumped in the third quarter but with a pickup in domestic demand helping to offset a drop in exports, according to data released on Thursday by the nation's statistics office. Third-quarter gross domestic product came in at a meagre 0.1 percent quarter-on-quarter, which was the nation's slowest growth rate for more than 12 months and left Europe biggest economy dangerously close to falling back into stagnation. Economists had forecast a third-quarter growt

11 November 2004

BERLIN - German economic growth slumped in the third quarter but with a pickup in domestic demand helping to offset a drop in exports, according to data released on Thursday by the nation's statistics office.

Third-quarter gross domestic product came in at a meagre 0.1 percent quarter-on-quarter, which was the nation's slowest growth rate for more than 12 months and left Europe biggest economy dangerously close to falling back into stagnation.

Economists had forecast a third-quarter growth rate of 0.3 percent with the weaker-than-expected GDP figure coming in the wake of growing economic uncertainties triggered by high oil prices, a surging euro and unemployment which remains stuck at more than 10 percent.

"German economic growth lost significant momentum during the third quarter," said Ralph Solveen, economist with Commerzbank AG.

Underscoring concerns that Germany's economic recovery might be fading faster than previously predicted, the statistics office also revised down the second-quarter growth figure from 0.5 percent to 0.4 percent. First-quarter German GDP also came in at 0.4 percent.

The economy "grew at a markedly slower pace than in the first two quarters of the year," the statistics office when issuing the new data.

The third-quarter GDP figure produced a moderate annual rise of 1.3 percent for Germany, compared to 1.9 percent during the second quarter. The economy shrank by 0.1 percent last year.

Up until now exports have been the key driving force behind Germany's emergence from more than three years of economic stagnation.

But the statistics office warned that in contrast to the four preceding quarters, the weak third-quarter economic growth was due to falling exports.

This, however, was offset by a "strong increase" in domestic demand, including in particular, a pickup in inventories and equipment investment spending as well as what the statistics office described as a relatively strong rise in imports.

Data released earlier this week showed German exports rising by 5.8 percent in September to record their slowest growth rate since February as signs of slower global economic growth have emerged on the back of high energy costs.

Combined with this have been fears that a strong euro might also dampen Germany's foreign orders.

This week the euro hit a record high of USD 1.30 but the release of the latest German GDP data helped to send the single currency back down below USD 1.29.

Economics and Labour Minister Wolfgang Clement seized on the statistics office data showing an increase in imports and investment as "a positive signal for the further development of domestic demand."

Clement said he was confident that annual growth this year would be in line with the government's 1.8 percent target forecast. Berlin is expecting growth to slip back to 1.7 percent in 2005.

"We have a strong export economy, but the development can't be quite looked at without concern," Clement said.

Going forward, some analysts also saw the improvement in domestic demand as offering some hope for the German economy in the months ahead with Commerzbank's Solveen saying the grim third-quarter GDP might end up representing only a small dent in the country's growth performance.

Nevertheless, the weaker-than-forecast German growth data is likely to confirm analysts' expectations that interest rates in the 12-member eurozone will remain at their current post-war low of two per cent well into the new year.

Some economists also now believe that data to be released on Friday will show the eurozone economy growing during the third quarter at less than the forecast 0.4 percent. The currency bloc posted a 0.5 percent growth rate during the second quarter.

DPA

Subject: German news 

0 Comments To This Article