May 15, 2013 / 6:11 AM / in 5 years

Germany narrowly avoids first-quarter recession with 0.1 percent growth

BERLIN (Reuters) - Germany just skirted a recession in the first quarter thanks to a rise in private consumption, leading some economists to cut full-year growth forecasts and underscoring how Europe’s largest economy cannot be relied on to drive a regional recovery.

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange May 9, 2013. REUTERS/Remote/Pawel Kopczynski

Seasonally-adjusted preliminary data released on Wednesday by the Statistics Office showed the German economy growing by 0.1 percent, significantly less than a median forecast in a Reuters poll of 35 economists for expansion of 0.3 percent.

The Office revised the contraction in the fourth quarter downwards to 0.7 percent from an originally reported -0.6 percent.

“This is a bitter disappointment. The economic forecasts for this year will be cut again significantly,” said Andreas Scheuerle at Dekabank. “Until now we had expected 2013 growth of 0.6 percent but it may now be 0.4 percent.”

The economy, which grew strongly during the early years of the euro zone crisis but lost momentum last year, has not yet featured prominently in Germany’s election campaign. But if it worsens significantly it could become a headache for Chancellor Angela Merkel as she seeks a third term in office in September.

Her government raised its 2013 growth forecast last month to a meager 0.5 percent. Nonetheless Germany is outperforming both the euro zone’s struggling periphery and other core economies such as France, which entered recession in the first quarter according to data released earlier on Wednesday.

A harsh winter weighed on German activity in the first quarter, with growth driven exclusively by private consumption while investments and exports declined, the Statistics Office said.

German companies’ financial results were a mixed bag in the first quarter, with many saying the improved demand they had hoped for, especially in crisis-riddled Europe, had not yet materialized.

More than a third of Germany’s 30 blue-chip companies posted worse-than-expected quarterly results. Most of them stuck with their 2013 outlook, banking on a pickup later in the year and support from efforts to cut costs to weather the crisis.

The Statistics Office showed the economy shrank 1.4 percent on the year in the first quarter after remaining unchanged in the fourth quarter.

Economists however said there were signs the German economy would pick up in the rest of the year, with signs of a revival in the construction sector, a rise in industry orders and a pickup in consumer and investor morale. Consumers were more upbeat going into May that at any point in the past 5-1/2 years.

“Germany will have to rely on domestic demand for growth this year,” said ING’s Carsten Brzeski. “Its fundamentals are very strong: employment rose by 0.7 percent in 2012 and continued to rise in early 2013.”

“Inflation is low, wages are rising and the very low borrowing costs for companies and households should boost purchases and investment.”

Additional reporting by Alexandra Hudson, Klaus Lauer and Rene Wagner in Berlin and Maria Sheahan in Frankfurt; Editing by Stephen Brown

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