Bumpy road for German economy - experts

Jan 08 2013 16:10

Unemployment is close to a 20-year low and wages are rising for the first time in years.

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Berlin - More evidence of sliding German exports and industry orders on Tuesday compounded concerns that the eurozone crisis may have battered the region's largest economy into contraction at the end of last year.

German imports and exports slid in November, narrowing the trade surplus, and industry orders fell more than expected.

Imports slid 3.7%, while exports fell 3.4%, data from the Federal Statistics Office showed on Tuesday. Economists polled by Reuters had expected imports to increase by 0.4% and shipments abroad to drop 0.5%.

Seasonally-adjusted industrial orders fell 1.8% in November, due mainly to a sharp fall in demand from non-eurozone countries. That was below a 1.4% drop forecast by a Reuters poll of 29 economists.

Germany has served as a pillar of regional strength through the three-year eurozone debt crisis but the economy slowed in the third quarter of last year and economists expect it to have contracted in the last quarter.

Although many see Germany escaping a recession and staging a steady improvement this year, Tuesday's data prompted some economists to predict a bumpy road.

"With a pick-up of global demand, exports could quickly return as the reliable growth driver. However, (the) latest new order data illustrate that the way out of contraction will not necessarily be a straight upward-sloped line," said Carsten Brzeski, senior economist at ING.

Germany is unlikely to join eurozone stragglers, he added, but "could end up humming the 'things will get worse before they get better' tune still for some time."

Trade surplus narrows

The seasonally-adjusted trade surplus narrowed more than expected to €14.6bn from a downwardly revised 14.9bn in October. The consensus forecast in a Reuters poll was for it to narrow slightly to €15.0bn.

Weakness in the European Union, where Germany sells roughly 60% of its exported goods, is weighing on exports.

Sovereign debt crises have driven most of its partners to raise taxes and cut spending, weakening appetite for German goods, although demand from emerging markets has gone some way to compensating for that.

A breakdown of the German trade data on an unadjusted basis showed exports to the eurozone slumped 5.7% on the year, even as exports to countries outside Europe rose 5.6%.

The drop in imports raises questions about the ability of German consumers and companies to prop up growth during the eurozone crisis, as many had hoped, with unemployment on the rise and consumer morale deteriorating.

Nonetheless, unemployment is close to a 20-year low and wages are rising for the first time in years. Purchasing managers' reports showed the private sector expanded for the first time in eight months in December, while the Ifo index showed morale at German businesses rising in November and December.

The economy ministry played down the decline in manufacturing orders given strong October figures.

"Overall, demand seems to be stabilising. The slight improvement in sentiment indicators also points to this," said the ministry in a statement.

Providing some reassurance about domestic demand, bookings from within Germany increased by 1.3%.

However, foreign orders fell by 4.1%. While bookings from the eurozone inched up 0.2%, contracts from countries outside the currency union slumped by 6.5% after an 8% rise in October.

"Demand for capital goods remains low in view of the weak economic environment in Europe, where there is significant overcapacity in many places," said Bernd Hartmann, head of investment research at VP Bank.

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economy  |  eurozone crisis



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