~~Germany Could Face Recession in 2012 ~~


Losing Momentum

The German economy grew strongly last year, despite the European debt crisis. Gross domestic product jumped by 3 percent, while the national deficit sank, the Federal Statistical Office reported on Wednesday. But experts warn that, given the slight contraction in the final quarter of last year, Germany could enter a recession in 2012.

It’s good news for financial markets. Despite the European debt crisis, new figures released on Wednesday show solid growth for Germany in 2011. The price-adjusted gross domestic product (GDP) increased by 3 percent year-on-year, the German Federal Statistical Office reported.

For the second year in a row, the German economy showed steady recovery from the economic crisis in 2009, when the country had its worst recession since World War II and GDP shrunk by 5.1 percent. But the latest figures show Germany’s GDP exceeding its pre-crisis level for the second year in a row, Destatis reported.

Consumers happy to part with their cash were the main driver of the growth last year, with private consumer spending up by 1.6 percent — an increase higher than any seen in the last five years.

But by year’s end, the worldwide economic downturn still negatively impacted the German economy. In the final quarter of 2011, GDP declined by approximately 0.25 percent compared to the previous quarter, Destatis estimated.

Economists Predict Recession for Early 2012

The German economy is expected to continue weakening this year due to the ongoing debt crisis in Europe, with economists predicting growth for the year to top out at just 0.5 percent. Some experts have even forecast a recession in Germany, Europe’s largest economy, beginning in the final quarter of 2011 and lasting into the first half of 2012.

In a study released on Tuesday, Deutsche Bank predicted that the export-driven German economy would contract for the first two quarters of the new year despite increased private consumption. Doubts about the debt crisis and austerity measures in many EU countries would be the main reasons behind the contraction, economists there said, predicting growth would dwindle down to 0.6 percent for the year. “Germany could slide into a recession for the first half of the year,” they said. However advances in fighting the euro crisis could “enliven” the German economy and the country’s export trade.

But thanks to the healthy economy, Germany’s public debt grew significantly more slowly in 2011 than it has in the past, with the deficit amounting to some 1 percent of GDP, Destatis reported. This means that for the first time in three years, Berlin managed to stay below the upper deficit limit of 3 percent set by the European Union’s Stability and Growth Pact.

Wholesale Industry Expects More Growth

Even if the outlook is somewhat gloomy, German wholesalers still expect to see an increase in sales in 2012. After a record increase of 7.5 percent to reach almost €860 billion ($1.1 trillion) last year, sales for 2012 are also expected to grow by some 3.5 percent to reach €890 billion.

While there are threats to the world economy and financial markets, there can be “no talk of a recession,” said Anton Börner, president of the Federation of German Wholesale, Foreign Trade and Services (BGA). The mood among businesses is “clearly positive,” he added. According to BGA numbers, the number of employees in the wholesale business grew by some 20,000 in 2011 to reach 1.15 million. In 2012 they expect to employ another 5,000 workers.



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