Germany economy recovers, but advisors slam debt

14th November 2009, Comments 0 comments

Germany is emerging from its historic recession in large part owing to huge injections of cash -- some 80 billion euros -- from the state.

Frankfurt -- Germany is well into recovery, official data showed Friday shortly before the government's own advisors slammed "deceptive" plans to reduce ballooning debt in Europe's biggest economy.

Data from the national statistics office "indicate that the German economy managed a remarkable comeback" in the second and third quarters of 2009 from its worst post-war recession, UniCredit economist Andreas Rees said.

But a coalition government agreement to cut the public deficit and pay down debt "is vague and deceptive in every way," a panel of top economists dubbed the "Five Wise Ones" added in an attack on Chancellor Angela Merkel's cabinet.

"The massive new public deficits must be rolled back from 2011 ... Without significant spending cuts tax hikes will be unavoidable," they said.

Germany is emerging from its historic recession in large part owing to huge injections of cash -- some 80 billion euros (119 billion dollars) -- from the state.

The Destatis statistics office said activity expanded by a provisional 0.7 percent in the third quarter from the previous three-month period, more than twice the figure achieved in neighbouring France which showed growth of 0.3 percent. Italy posted growth of 0.6 percent.

Across the 16-nation eurozone, economic activity increased by 0.4 percent according to the European Union's data agency Eurostat, ending a recession that began in the second quarter of 2008.

In Germany, Desatis revised its initial estimate for second-quarter growth slightly higher as well, to 0.4 percent from 0.3 percent previously.

That followed four quarters of contraction, including a plunge of 3.5 percent in the first three months of this year.

"The German economy has emerged from the deep recession earlier and faster than many had thought," ING senior economist Carsten Brzeski said.

Destatis is to release detailed results on November 24.

Fears of rising unemployment and an end to Germany's car scrapping premium have weighed on consumer spending however, while imports jumped, "probably the main reason why third quarter GDP (gross domestic product) came in a nudge weaker than we had expected," said UBS economist Martin Lueck.

On a 12-month basis, German activity contracted by 4.8 percent, in line with forecasts and better than a decrease of 5.8 percent in the second quarter, Destatis said.

Germany's export-dependent economy was slammed by the global downturn, but is now meeting fresh demand for machine tools, automobiles and chemical products.

Economy Minister Karl-Theodore zu Guttenberg has forecast the economy would grow by 1.2 percent in 2010, while the "Five Wise Ones" were more optimistic, issuing an outlook for growth of 1.6 percent.

Although Germany has recovered quickly from recession, the country faces the prospect of rising unemployment, despite subsidised shorter working hours that have limited the damage.

"Today's figures exaggerate the underlying pace of growth," Commerzbank's chief economist Joerg Kraemer warned.

He said that a large part of the gain came from the fact "that companies around the globe are now catching up on some of the spending shelved when the shock news of Lehman Brothers’ collapse was announced" in September 2008.

But Kraemer and other analysts also noted that some government stimulus measures had still not kicked in.

"Ongoing monetary and fiscal stimulus also in 2010 - notably government investment in infrastructure and higher child support payments for the consumer - will remain supportive for German economic growth in the quarters ahead," Global Insight senior economist Timo Klein concluded.

William Ickes/AFP/Expatica

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