fundamental alert

German Growth Slumps in 2008 on Global Recession

Wednesday, 14 January 2009 07:13:53 GMT  |  DailyFX Research

German real GDP growth decelerated to 1.3% last year from 2.5% in 2007. The breakdown showed stagnating private consumption and a pick up in government consumption of 2.2%. Capital investment rose 5.3% and construction investment 2.7%, which are still robust numbers. Exports were up 3.9%, but this was outweighed by a 5.2% rise in import growth. On a workday adjusted basis the slowdown in overall growth was even more pronounced with workday adjusted GDP rising 1.0%, versus 2.6% in 2007. Consensus expectations had been for 2008 growth of 1.4% and the slightly lower result suggests a sharp contraction in economic activity in the last quarter of the year, as export demand breaks off and the manufacturing sector is facing a slump in demand that is forcing production cuts. Consumption was already weak last year and is unlikely to improve any time soon in the light of rising unemployment. We had been looking for a contraction in overall growth of 1.5%, but the German economy could face negative growth of more than 2% if the government's stimulus package fails to lift confidence soon.
Meanwhile, German Q4 GDP estimated at -1.5-2.0%, according to the Statistics Office. Official data will only be released later but the 1.3% GDP growth rate for 2008 already suggested a sharp contraction in economic activity in the last quarter of the year as export demand slumped and production was halted for a long Christmas vacation. The statistics office also said that the statistical drag this year amounts to 1.5% of GDP, which means even if GDP remained steady through 2009 and growth was zero in all quarters overall GDP would drop 1.5% this year. With Q1 GDP likely to contract again and a pick up highlight unlikely before H2 our forecast for -1.5% growth is likely to be undershot.

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