German Export Plunge Sparked Record Economic Slump
German exports and company spending plunged in the first quarter, dragging Europe’s largest economy into its deepest slump on record.
Exports dropped 9.7 percent from the fourth quarter and company investment declined 7.9 percent, the Federal Statistics Office in Wiesbaden said today. Gross domestic product fell a seasonally adjusted 3.8 percent from the previous three months, the office said, confirming an initial estimate from May 15. That’s the steepest drop since quarterly data were first compiled in 1970.
The worst global recession since World War II has exposed Germany’s reliance on exports as an Achilles Heel, forcing companies to slash output and cut jobs. Chancellor Angela Merkel’s government, which expects the economy to contract 6 percent this year, will spend about 82 billion euros ($115 billion) to fight the crisis. German business confidence rose for a second month in May and investors also grew more optimistic, suggesting the economic slump is bottoming out.
“The year’s first three months were certainly the worst,” said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. “The economy probably continued to shrink in the current quarter but that should be followed by a stabilization in the second half.”
Consumer spending rose 0.5 percent in the first quarter from the fourth, even as households’ disposable incomes declined 0.9 percent, the statistics office said.
‘A Winner’
Eckhard Cordes, chief executive officer of Metro AG, said on May 13 that Germany’s largest retailer “is not part of the economic downturn.” The Dusseldorf-based company will emerge as “a winner” from the recession, he said.
Still, company investment in machinery and equipment slumped 16.2 percent and construction spending declined 2.6 percent, today’s report showed. Imports fell 5.4 percent in the three months through March, almost half the slump in exports, so that net trade reduced GDP by 2.2 percentage points.
Bayerische Motoren Werke AG, the world’s largest maker of luxury cars based in Munich, said on May 14 that 2009 will be a “challenging” year payday loans. Schaeffler Group, the ball-bearing maker that owns Continental AG, said earlier this month it plans to cut labor costs by 250 million euros on declining orders.
‘Ongoing Recession’
“We expect an ongoing recession in the rest of 2009,” said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. “However, the speed of the deterioration should at least decelerate. This also seems true for foreign demand, thus the export sector should hardly give impulses for the German economy in the next few months but the drag should be smaller.”
The first-quarter drop in GDP marked an unprecedented fourth successive quarterly contraction for Germany’s economy.
In the economy of the 16 euro nations, Germany’s largest export market, GDP declined 2.5 percent in the first quarter from the previous three months. That’s the biggest drop since the data were first compiled in 1995.
While policy makers have expressed optimism that the world recession may be easing, any recovery is likely to be slow. The global economy will shrink 1.3 percent this year and only return to growth in 2010, the International Monetary Fund says.
There are signs of stabilization. European confidence in the economic outlook increased for the first time in 11 months in April and the recession in the region’s manufacturing industry eased for a third month in May.
Germany’s benchmark DAX Index has gained 18 percent since the beginning of the second quarter after declining 15 percent over the previous three months, reflecting increasing optimism among investors and executives.
European Central Bank council member Axel Weber said yesterday that while “rays of light” are positive, there’s “no reliable indication that the global economy is past the worst.” The euro-region economy may only “gradually stabilize during the latter part of 2009,” he said.