February 24, 2010 / 4:14 PM / 10 years ago

UPDATE 3-Exports support stumbling German economy in Q4

* Consumer sentiment to decline for fifth straight month

* Concern over first quarter due to harsh winter

* Euro zone data also raise concerns about demand

(Adds detail, background)

By Sarah Marsh

BERLIN, Feb 24 (Reuters) - Germany’s economic recovery stalled in the fourth quarter of 2009, as weak consumption and a liquidation of inventories offset firmer exports, leaving Europe’s largest economy on a weak footing going into 2010.

Detailed figures from the Federal Statistics Office on Wednesday confirmed gross domestic product (GDP) was unchanged on the quarter after expanding in the previous two, in line with a flash estimate for Q4 earlier this month.

Further clouding Germany’s economic outlook, a survey showed consumer morale is likely to decline going into March. Other data pointed to flagging household demand among Germany’s euro zone peers, which are also export markets for German businesses.

“It looks as if the German economy has fallen into hibernation: stagnating growth in the fourth quarter and yesterday’s weakening Ifo index,” said Carsten Brzeski, an economist ING Financial Markets.

“However, looks can be deceiving. The underlying trend remains healthy. Demand for German products remains strong.” ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Click on the url below for a graphic of the breakdown of German GDP showing net exports offsetting weaker consumption and investment.

r.reuters.com/naf62j ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Germany, which is heavily dependent on foreign trade for growth, was hit especially hard by the global crisis last year, when the economy shrank by a record five percent.

The economy pulled out of a recession in the second quarter of 2009 before stalling in the fourth quarter, and recent forward-looking data indicates the recovery will be rocky.

The GfK market research group said on Wednesday German consumer sentiment is likely to decline going into March as worries over the economy dent consumers’ income expectations and willingness to make purchases. [ID:nLDE61M29I]

An uncertain outlook for other euro zone countries also poses a risk to Germany.

A French scheme to pay owners of old cars to trade them in for new ones buoyed euro zone industrial orders in December, data showed on Wednesday, raising concerns that demand would fall sharply as the benefit is phased out.

In Italy, retail sales were flat on the month.

Data from the Ifo economic think tank on Tuesday also showed German business sentiment falling for the first time in almost a year in February, suggesting a harsh winter may send Germany sliding back into the red in the first quarter. [ID:nLDE61M0UN]

“German GDP will probably contract in the first quarter, then we should see a recovery. However, there will be bumps along the way,” said WestLB analyst Joerg Lueschow.


The GfK drop was the fifth in a row for the indicator, but the fall was slightly above the Reuters consensus forecast.

Private consumption subtracted 0.6 points from GDP in the October-December period, the Statistics Office said, while a liquidation in inventories subtracted 1.2 points.

However, analysts said demand for German products remained strong and the economy could well make up any ground it loses over the winter later this year.

Net trade added two percentage points to GDP in the fourth quarter as imports fell and exports jumped. German exports rose 3.0 percent on the month in December, pushing foreign demand above the year-ago level for the first time in 14 months.

“This is a classic story for the German economy. Final domestic demand remains very weak and it is left to the booming export sector to keep the economy afloat,” said Nick Kounis, chief European economist at Fortis Bank.

“This basic picture will remain in place this year, although recent data may over-state the weakness in the economy as activity on the high street and on building sites has probably been depressed by the poor weather.”

Year-on-year, the economy shrank by 1.7 percent in the fourth quarter, the data showed, following a 4.7 percent drop in the July-September period, matching preliminary estimates.

Adjusted for working days, German GDP contracted by 2.4 percent on the year in the fourth quarter. (Additional reporting by Dave Graham; Editing by Stephen Nisbet and Patrick Graham)

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