Data boost hope Germany out of ‘freefall’

Data boost hope Germany out of ‘freefall’
By Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2009
Published: May 8 2009 12:20 | Last updated: May 8 2009 18:06
http://www.ft.com/cms/s/0/b27d5092-3bbd-11de-acbc-00144feabdc0.html


Germany’s rapid economic contraction is coming to an end, industrial production and export data signalled on Friday, raising hopes that Europe’s largest economy is back on a more stable footing.

After plunging last year, German industrial production remained flat in March.

Exports rose 0.7 per cent in the first month-on-month increase since September, adding to evidence that continental Europe’s severe recession is easing – even if a return to growth seems some way off.

“We have left behind the freefall of the first quarter,” said Jörg Krämer, chief economist at Commerzbank in Frankfurt. “The quality of the decline is totally different.”

The scale of the contraction in the past six months has left Germany badly scarred and its economy is expected to perform significantly worse this year than those of the US or UK.

The country’s dependence on exports, especially of machinery and equipment to emerging economies, left it particularly exposed to the slump in global demand that followed the failure of Lehman Brothers investment bank last September.

Industrial output fell by 6.6 per cent in the fourth quarter of last year, but the pace of decline accelerated in the first quarter, which saw a 12 per cent decline. Industrial output in February and March was down at levels not seen since mid-1999.

First-quarter German gross domestic product figures next week are expected by economists to show a quarter-on-quarter contraction of as much as 3.5 per cent – comfortably beating the already severe 2.1 per cent fall seen in the final three months of last year.

Unemployment is expected to rise strongly in coming months and damp consumer spending.

However, forward-looking indicators suggest that the pace of decline will have moderated sharply by the middle of this year, raising the possibility of GDP growing again later in the year.

Business confidence surveys have rebounded recently, and industrial orders figures this week showed an unexpected 3.3 per cent rise in March – the first monthly increase since August.

Evidence is building that German companies, having run down inventories, may need to start restocking, which could boost production in coming months.

Car industry production has, meanwhile, been boosted by government incentives for Germans trading in old cars.

Dirk Schumacher, an economist at Goldman Sachs in Frankfurt, argued the sheer size of Germany’s economic contraction meant “the medium-term snap back could be quite large”.

Experience suggested that banking crises typically led to protracted recessions, but the impact on the industrial economy of the continuing difficulties in the financial sector – in Germany, as well as globally – remained unclear.

“Just as we were surprised by the severity of the recession, there is a possibility that the rebound could be faster than we anticipated,” said Mr Schumacher.

“We simply don’t have much experience with shocks of this magnitude and how they work through the system,” he added.

Economists had expected a further fall in March industrial production.

Details of the data showed a 2.5 per cent increase in capital goods compared with the previous month. Construction activity was up 7.6 per cent, boosted by better weather.

The economics ministry in Berlin described the fall in total production in the first quarter as “exceptionally strong” but argued that in the course of the three months “the downward dynamic had weakened noticeably”.