The German economy was hit hard by the euro zone crisis in the final quarter of last year, shrinking more than at any point in nearly three years as traditionally strong exports and investment slowed, new statistics show.
Gross domestic product shrank by 0.5 per cent in the final three months of 2012, the worst quarterly performance since Germany fell into a recession during the global financial crisis in 2008/2009, and only the second contraction since it ended. The parlous fourth quarter pushed overall growth for the year down to 0.7 per cent, a sharp slowdown from the 3.0 per cent registered in 2011 and a post-reunification record of 4.2 per cent in 2010.
"In the previous two years, GDP growth had been much larger but that was due to a catching-up process after the worldwide economic crisis of 2009," said Roderich Egeler, head of the Statistics Office, adding the economy had been robust overall.
Economists expect Germany to bounce back after forecasts for weak growth in the first quarter but Europe's largest economy will be less of a pillar of support for the rest of the currency bloc.
“The German economy might not be an island of happiness any longer but it remains at least an island of growth in a still recessionary euro zone sea,” said ING economist Carsten Brzeski.
The government is due to publish an estimate for 2013 growth on Wednesday. An official from the Economy Ministry said growth would be 0.4 per cent this year, less than half the government's existing forecast of 1.0 per cent.
So far unemployment remains low and wages are likely to rise again this year, but if ordinary Germans were to feel the pinch of the euro crisis in an election year, it could hurt popular centre-right Chancellor Angela Merkel's hopes for a third term.
Andreas Scheuerle of Dekabank said the 2012 figure was "disappointing" at a first glance. "But if you take the tough environment in the euro zone and weakness in growth markets into account, one can be quite pleased after all," he added.
Despite the slowdown, a still strong labour market and rising wages helped Germany swing to its first public sector budget surplus in five years.
The Statistics Office said the federal government, states, communities and social insurance together produced a small surplus of 0.1 per cent of GDP.
Economists noted this was not due to efforts by Merkel's government, which has pressured other euro zone countries to cut spending and embark on tough structural reforms to boost Europe's competitiveness and reduce debt.
Reuters
