Worst Recession Since WWII

German Economy Shrank 5 Percent in 2009

The German economy contracted by 5.0 percent in 2009, according to preliminary official statistics confirming that Europe's largest economy suffered its worst recession last year since World War II. It has started to grow again, but the recovery will be slow and vulnerable, economists warn.

German economic output shrank by 5.0 percent in 2009 as Europe's largest economy suffered its worst recession since World War II, the country's Federal Statistics Office said on Wednesday.

AP

Containers on the move in the German river port of Duisburg.

The recession was five times worse than the previous record post-war contraction, a 0.9 percent decline in 1975 after the oil crisis, preliminary figures provided by the office showed. In 2008, the German economy had grown 1.3 percent, down from 2.5 percent in 2007.

Last year's decline was due to a collapse in exports and investments as a result of the global economic downturn. Exports slumped by 14.7 percent while companies spent 20 percent less on investment goods such as machinery and vehicles, the office said.

But consumer spending grew slightly, by 0.4 percent, because there was virtually no consumer price inflation and the government's cash-for-clunkers scheme boosted purchases of cars.

The worst of the downturn came in the winter of 2008/2009 and the economy began recovering in the spring, returning to growth in the second quarter of 2009 when GDP grew 0.4 percent from the previous quarter, followed by an acceleration to 0.7 percent growth in the third quarter. But that wasn't enough to prevent the sharp decline for 2009 as a whole.

Slow Recovery Ahead

It will take time for the economy to recover. Analysts say output won't reach pre-crisis levels until 2013. The government expects GDP growth of just 1.5 percent in 2010 but many economists are more optimistic and forecasts range between 1.6 percent and 2.3 percent.

"The recession is clearly over but the economic crisis isn't yet," Commerzbank chief economist Jörg Krämer told Reuters. "Companies will still produce significantly less than before the crisis." DekaBank economist Andreas Scheuerle told Reuters that the recovery had lost some momentum in the fourth quarter of 2009.

The statistics office will release updated GDP data for 2009, including keenly awaited preliminary figures for the fourth quarter, on Feb. 12.

The office also said that Germany's total public budget deficit amassed by the federal, regional and municipal authorities and by the social insurance systems surged to €77.02 billion ($112 billion) in 2009, amounting to 3.2 percent of GDP, just above the 3 percent deficit limit stipulated by EU rules.

"That gives Germany the lowest deficit ratio of all euro member states after Luxembourg," said Krämer at Commerzbank. In 2008 the deficit was just €1.05 billion, amounting to a deficit-to-GDP ratio of zero percent.

cro -- with wire reports

http://www.spiegel.de/international/business/0,1518,671725,00.html