German Economy Unexpectedly Stagnates In Q4

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The German economy unexpectedly stagnated in the fourth quarter as final consumption expenditure and investment failed to support growth.

The gross domestic product remained flat on a sequential basis in the fourth quarter, following a 0.7% rise in the previous three months, according to preliminary data published by the Federal Statistical Office on Friday. Economists had expected a quarterly growth of 0.2%. Thus, the recovery of the German economy lost momentum at the end of 2009.

ING Bank economist Carsten Brzeski said today's GDP figure is a good reminder that recoveries can not only be bumpy but also capricious. The economist expects the labor market to stabilize in the first half of the year, supporting private consumption later on. Although the Eurozone growth engine has taken a break in the fourth quarter, it should return soon, he noted.

The only positive contribution to GDP on a quarterly basis was made by foreign trade as exports grew again and imports recorded a decline in the fourth quarter. Final consumption expenditure and capital formation were down and, consequently, had a slow-down effect on economic growth.

Meanwhile, Germany conceded its top exporter title to China earlier in the week. The German statistical office confirmed on Tuesday that China overtook Germany as the world's largest exporter in 2009. Official data showed that German trade suffered its sharpest slump since 1950 last year. German exports totaled $1.12 trillion in 2009, less than China's $1.20 trillion export revenue.

The price-adjusted GDP declined 1.7% annually, smaller than the 4.7% contraction seen in the third quarter. The consensus forecast was for a 1.6% fall. Upon calendar adjustment, the annual decrease was 2.4% compared to a 4.8% drop in the previous quarter and the expected decline of 2.2%.

According to Destatis, economic performance was achieved by 40.6 million persons in employment, which was a decrease of 156,000 persons or 0.4% on a year earlier. The statistical office is slated to release detailed GDP data on February 24.

The carry-over effect of 2009 is 0.5%, Destatis said. According to the agency, this would be the growth rate for 2010 if the seasonally and calendar-adjusted GDP in 2010 stagnated at the level of the fourth quarter of 2009.

Other data argue against the recovery in the German economy being already over, Commerzbank chief economist Jorg Kramer said. "We expect to see a substantial gain in the first quarter with growth gradually cooling only thereafter - also in light of the long-term consequences of the debt crisis in the Eurozone periphery."

Eurozone GDP clearly suffers from some downside risks, UniCredit Research said. However, the French GDP data released shortly after the German figures were upbeat. A flash estimate from the French statistical office Insee showed that the country's gross domestic product rose 0.6% sequentially in the fourth quarter. Economists had forecast 0.5% rise.

The German economy unexpectedly stagnated in the fourth quarter as final consumption expenditure and investment failed to support growth. (Market News Provided by RTTNews)