German contraction blow for eurozone

In a worrying sign for the resolution of the eurozone crisis, its biggest economy, Germany, experienced a sharp contraction in economic growth for the last quarter of last year.

A statement released by the German Ministry of Finance yesterday estimated 2012 fourth quarter GDP contracted by 0.5%. Overall, growth last year was forecast at 0.7%, which is considerably below the 3% growth posted in 2011.

Germany is heavily dependent on exports to spur economic growth. But the global economy slowed last year, mainly on the back of concerns about the eurozone, which hit German export numbers.

Moreover, over half of all German exports go to other eurozone member states. The deep recessions in periphery countries has caused a significant decrease in demand for German goods.

However, in a statement also released yesterday, the Bundesbank said it expected the economy to stabilise and post marginal growth rates over the next couple of quarters.

“There shouldn’t be a technical recession,” said Christian Ott, an economist at NatixisSecurities in Frankfurt.

“We expect some level of economic growth in the first quarter as domestic demand compensates somewhat for weak foreign trade.

“At the same time, the recovery in global trade will be very slow. If it falls away completely, then we won’t manage to avoidrecession.”

Berlin also released exchequer figures yesterday which shows that borrowings fell by €22.5bn last year, which helped the federal government end 2012 with a fiscal surplus of 0.1%. The economy posted a 0.8% fiscal deficit in 2008.

In 2009, Germany introduced a debt break into its constitution, which means the Government has to achieve a balanced budget every year from 2016 onwards.

The Ministry of Finance said the levels of employment has boosted tax returns. The move has come in for a lot of criticism as it prevents Berlin from embarking on any significant investment programmes. Without any measures that stoke domestic investment in the German economy, further imbalances within the eurozone will ensue.