Recession strikes Germany biggest blow for 40 years | business | Hindustan Times
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Recession strikes Germany biggest blow for 40 years

business Updated: May 15, 2009 14:38 IST

Recession has struck the German economy the biggest blow for 40 years, official data for the first quarter showed on Friday revealing that output shrank by 3.8 percent.

Europe's biggest economy, accounting for a third of eurozone output, contracted by 3.8 percent in the first three months compared to the final quarter of 2008, when it shrank 2.2 percent, the statistics office said.

The latest data marks the biggest retreat by the powerhouse economy since records began 40 years ago.
France, Germany's main partner and the second-biggest eurozone economy, meanwhile entered official recession, with statistics showing output falling 1.2 percent after a 1.5-percent drop in the last quarter of 2008.

The French finance minister said this meant that the economy was set to shrink three percent this year, and figures in other European countries such as Italy, Austria and Hungary out Friday painted a similarly bleak picture.

Germany entered recession, defined as two quarters running of falling gross domestic output (GDP), two quarters earlier, in the third quarter of 2008. France narrowly avoided the same fate then with growth of 0.1 percent.

The worse-than-expected German result -- economists had forecast a drop of 3.2 percent -- was the worst since records began in 1970, the statistics office said. The figures are preliminary and will be finalised on May 26.

Compared to the first quarter of 2008, the picture is even bleaker, with Germany producing 6.7 percent less goods and services, or 6.9 percent when adjusted for calendar effects skewing the figures.

UniCredit Economist Alexander Koch said however that the "ugly" figures mark the low-point, with business sentiment in Germany and in almost all other major economies bottoming out. "This very bad news, which was broadly expected, had demonstrated the large dependence of the German economy to foreign trade," said Natexis economist Costa Brunner. "But the good news is that the worst is behind us."

Measures worldwide to get banks lending again, rock-bottom interest rates, lower commodity prices and signs that the worst may be over in manufacturing should support Germany from July onwards, Brunner said.

Chancellor Angela Merkel's government shares this optimism, predicting 0.5 percent growth in 2010, albeit after a slump of six percent this year -- the worst slowdown since World War II.

But the problems facing the conservative Merkel, who is running for re-election on September 27 heading a fractious coalition with the centre-left, are far from over.

Government estimates on Thursday showed the recession rapidly blowing a massive hole in Germany's public finances, with tax receipts falling off a cliff while government spending rockets skywards.

Germany's growing debt mountain is expected to figure highly in campaigning for the elections, as is unemployment, which is expected continue rising well after the hoped-for recovery begins.