Economy

Germany posts meagre first quarter GDP growth

Economy grows by 0.1% as limp investment and construction activity drag

File photograph of a worker controlling a blast furnace at Europe’s largest steel factory in the western German city of Duisburg. Germany’s economy crept back into growth in the first quarter of the year after a sharp contraction at the end of 2012. Photograph: Ina Fassbender/Reuters.

Fri May 24 2013 - 07:40

The German economy returned to growth in the first quarter but limp construction activity and investment brought about by a severe winter and a recession in Europe dampened demand.

Construction fell 2.1 per cent from the fourth quarter and capital investment dropped 1.5 per cent, the Federal Statistics Office in Wiesbaden said today.

Gross domestic product increased 0.1 per cent, the office said, in line with earlier estimates.

From a year earlier, the economy shrank 0.2 per cent when adjusted for working days. With the 17-nation euro area mired in recession and the coldest March in a quarter-century freezing building activity, Europe’s largest economy has relied on domestic demand to haul it back to growth. GDP fell 0.7 per cent in the fourth quarter of 2012.

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"The somewhat disappointing first-quarter result was due mainly to the cold weather and the sensitivity of companies to developments in the rest of Europe," said Gerd Hassel, an economist at BHF Bank AG in Frankfurt.

“While that uncertainty hasn’t quite fully dissipated yet, there should be a rebound in construction activity in the second quarter and we could see better-than-expected results.”

Household spending rose 0.8 per cent in the first quarter, while public spending fell 0.1 per cent, today’s report showed.

Exports declined 1.8 per cent and imports dropped 2.1 per cent. Domestic demand didn’t add to growth as stronger consumption was offset by weaker investment, while net trade contributed 0.1 percentage point to GDP.

The Bundesbank, which in December predicted growth of 0.4 per cent this year and 1.9 per cent in 2014, will publish new forecasts next month.

The euro-area economy shrank more than economists forecast in the three months through March, extending its recession to a record sixth quarter. GDP in the region fell 0.2 per cent after a decline of 0.6 per cent in the previous quarter.

Poor economic data prompted the European Central Bank to cut its benchmark interest rate to a record low of 0.5 per cent this month, and ECB president Mario Draghi has said he's ready to lower borrowing costs again if the economy worsens.

Bloomberg

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