German GDP shrinks as France edges up

Berlin/Paris: Germany's economy contracted slightly in the fourth quarter but both it and France, which eked out anaemic growth, performed better than forecast, suggesting the Eurozone may skirt a recession even though its high debtors remain deep in the mire.

German gross domestic product contracted 0.2 per cent, a slowdown from upwardly revised 0.6 per cent growth in the July-September period, data showed yesterday.

France fared better, growing by a stronger-than-expected 0.2 per cent in the fourth quarter from the previous three months as companies invested more and consumers continued to spend.

Figures for the Eurozone as a whole are forecast to show its economy slipped by 0.3 per cent quarter-on-quarter although it could now come in stronger. Germany's figures were a little better than forecast and more forward-looking survey evidence suggests its downturn will be short-lived. The ZEW think tank's monthly poll of economic sentiment jumped for the third month in a row on Tuesday, to its highest level since April 2011, reinforcing signs that Europe's largest economy is returning to growth.

‘Growth pause'

"The first economic contraction since the end of the recession turned out to be weaker than expected, confirming that the German economy only took a growth pause and is not approaching a new recession," ING's Carsten Brzeski said.

France's economy also beat expectations that it would shrink by 0.1 per cent, growing by 0.2 per cent, and economists said it too might avoid recession — defined as two consecutive quarters of negative growth.

"We may see a contraction in the first quarter, but we already have indicators pointing to a recovery from the second quarter onwards," said Michel Martinez, chief France economist at Societe Generale in Paris.

Late last year, European Central Bank President Mario Draghi forecast a mild recession for the currency bloc. His latest assessment, given at a news conference following a monetary policy meeting last week, was that there was evidence of "a stabilisation of economic activity at a low level".

Finland posted quarterly growth of 0.7 per cent. The exception in the northern half of the currency bloc was the Netherlands which subsided into recession, shrinking by 0.7 per cent, following a third-quarter contraction of 0.4 per cent.

"The country data released so far this morning suggest that Eurozone GDP contracted by rather less than expected in the fourth quarter of last year." said Jonathan Loynes, chief European economist at Capital Economics. "Coupled with the recent improvement in some of the leading indicators, that may raise hopes that the region will expand again in the first quarter and hence avoid a technical recession."

Peripheral misery

Even if the Eurozone avoids recession, for its members at the epicentre of the debt crisis there is no chink of light. Italy's economy contracted a steeper than expected 0.7 per cent in the final part of last year, throwing the country into a recession expected to last for much of 2012.

The International Monetary Fund forecasts a full-year contraction of 2.2 per cent in 2012, while the Bank of Italy sees a more modest decline of 1.2-1.5 per cent. The government has official projections of 0.4 per cent, considered unrealistic by independent forecasters.

With wrangling over a second Greek bailout still unresolved, data on Tuesday showed Greece's economy shrank by seven per cent year-on-year in the fourth quarter, much worse than a third quarter decline of five per cent. Austerity measures demanded by its lenders are likely to make things worse.