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| German economy enters worst recession in 12 years |
| Bloomberg / Frankfurt Nov 14, 2008, 00:51 IST |
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Gross domestic product drops a seasonally adjusted 0.5 per cent from the second quarter, when it fell 0.4 per cent.
The German economy, Europe's largest, contracted more than economists expected in the third quarter, pushing the nation into the worst recession in at least 12 years.
Gross domestic product dropped a seasonally adjusted 0.5 per cent from the second quarter, when it fell 0.4 per cent, the Federal Statistics Office in Wiesbaden said today. Economists expected a 0.2 per cent decline, the median of 40 forecasts in a Bloomberg News survey showed. The economy last contracted this much over two consecutive quarters — the technical definition of a recession — in 1996.
German companies are scaling back production as slower global growth erodes export demand. Siemens AG, Europe's largest engineering company, reported a profit decline today and plans to cut 16,750 jobs by 2010. Germany's benchmark DAX Index has tumbled more than 40 per cent this year, business confidence fell to a five-year low last month and manufacturing orders plunged in September.
“The German recession has begun in earnest and it's very serious,'' said Holger Schmieding, chief European economist at Bank of America Corp in London. “It raises the risk of a German contraction of more than 1 per cent next year and we will have to revise down our forecast for the euro area as well.''
Eurostat, the European Union's statistics arm, will publish third-quarter growth data for the euro region tomorrow.
Exports Hurt
The euro dropped more than a cent to $1.2388 after the German report. European notes rose, pushing the yield on the two-year security down 5 basis points to 2.22 per cent, the lowest level in three years. In the year, the economy grew 0.8 per cent when adjusted for the number of working days, the statistics office said. The third-quarter slowdown was led by trade as exports weakened and imports rose. Consumer and government spending improved “slightly”.
The Organization for Economic Cooperation and Development today joined the International Monetary Fund in predicting advanced economies including the US and euro area will contract simultaneously next year for the first time since World War II.
Federal Reserve Chairman Ben S Bernanke, Bank of England Governor Mervyn King and European Central Bank President Jean-Claude Trichet have all signaled they're ready to cut interest rates further to stem the deepening economic slump.
The European Commission said on November 3 that the 15-nation euro region is probably already in a recession. Just over 40 per cent of German exports go to other euro-area nations.
Households may spend less and save more as companies retrench. Continental AG, which makes auto parts, plans to jettison 5,000 temporary workers and extend holiday production breaks. General Motors Corp's Adam Opel brand closed plants in Eisenach and Bochum for three and two weeks, respectively, to reduce production, forcing workers to take a vacation.
“The shock waves pushed out by the financial crisis have hit Germany full on, if later than other countries,” the government's five independent economic advisers said yesterday. They called on Chancellor Angela Merkel to expand a 50 billion-euro ($63 billion) fiscal stimulus package to help revive growth.
Siemens Chief Executive Officer Peter Loescher today said next year's profit goals have become “more ambitious'' after the company reported a bigger decline in fourth-quarter earnings than analysts had expected.
Deutsche Lufthansa AG, Europe's second-biggest airline, said it filled fewer seats on its aircraft last month as the cooling economy deterred business and leisure travel.
Ralph Solveen, an economist at Commerzbank AG in Frankfurt, expects a “marginal'' recovery in the second half of next year.
“The German economy would have cooled regardless of the financial crisis, which just gave it the final push into recession,'' he said. “The factors that slowed German growth earlier this year such as high inflation, a strong euro and tight monetary policy are all disappearing, which should feed through to the economy next year.''
The statistics office revised first-quarter growth to 1.4 per cent from 1.3 per cent and raised its second-quarter estimate from a 0.5 per cent decline. It will publish a detailed breakdown for the third quarter on November 25.
The turmoil that began with the US housing slump drove Lehman Brothers Holdings Inc into bankruptcy in September and caused the biggest global stock sell-off in 70 years. The world's largest financial companies have posted almost $1 trillion in writedowns since the start of last year, when the collapse of the US sub-prime mortgage market triggered a credit shortage.
ECB Rates
With growth slowing around the world, oil prices have collapsed to $56 a barrel yesterday from a peak of $147 in July, easing inflation pressure and giving central banks from Washington to Beijing room to slash interest rates. The euro has dropped 20 per cent against the dollar in the past four months.
Investors expect the European Central Bank to lower its benchmark rate by at least half a percentage point at its next meeting on December 4, Eonia forward contracts show. That would be the sharpest rate reduction in the bank's 10-year history after its two half-point cuts in the past month to 3.25 per cent.
Germany still faces “a long, drawn-out recession,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt, who forecasts the economy will shrink 1.5 per cent next year. “Unfortunately, we don't see any respite any time soon. Where should the growth come from?''
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