German Economy Shrinks Most in Three Years; Situation Significantly Worse Than Mood

Germany is in recession. It's not a "technical recession", no matter how anyone labels it. And the recession will pick up steam as the year progresses.

Please consider Germany’s economy shrinks most in 3 years as crisis hits eurozone powerhouse.

WIESBADEN, Germany — The German economy was hit hard by the eurozone 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, the Statistics Office said on Tuesday.

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, where many of its peers are deeply in recession.

Gross domestic product shrank by 0.5% 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%, a sharp slowdown from the 3.0% registered in 2011 and a post-reunification record of 4.2% in 2010. The 2012 figure was a tad below a Reuters consensus forecast for growth of 0.8%.

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% this year, less than half the government’s existing forecast of 1.0%.

Situation Significantly Worse Than Mood

“The situation is significantly worse than the mood. But the eurozone crisis is far from over. It’s wishful thinking to expect otherwise,” said Clemens Fuest, incoming head of ZEW research institute.

I certainly concur with Feust. Note the GDP downgrade from 1.0% to .4% for 2013. Expect another and another. The only thing that Europe has going for it is a recovering bond market but don't expect that to last either.

Italy and Spain are known basket cases. More importantly, France, the Hidden Zombie in Europe, is about to take a deep plunge.

Finally, the recent pickup in China is not sustainable, and the US is clearly weakening.

Since Germany cannot export to itself, its export machine will grind to a halt as I said well over a year ago.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com