German economy leads Europe out of recession (Roundup)

By Andrew McCathie Nov 9, 2009, 13:46 GMT

Berlin - The German economy is marking the run-up to the end of the year with a fresh batch of better-than-forecast data released Monday showing the country helping to spearhead Europe out of recession.

While German exports surged by 3.8 per cent in September, production in Europe's biggest economy chalked up a solid 2.7-per-cent rise amid signs that the nation's recovery from its biggest economic downturn in a generation will be faster than predicted.

'We see Germany leading the recovery in the eurozone, with annual gains of around 2 per cent over the next two years,' said Jennifer McKeown European Economist with the research group Capital Economics.

Indeed, the release of the latest German data comes ahead of the publication later this week of figures, which are forecast to show the 16-member eurozone emerging from recession in the third-quarter to post a 0.6-per-cent growth rate.

The brighter economic picture facing Germany will also add to the celebratory mood in the nation as it marks the 20th anniversary of the fall of the Berlin Wall, a defining moment in Europe's history.

To be sure, analysts are forecasting that the German economy will record a solid pickup in growth as it enters 2010 after it unexpectedly climbed out of recession during the second quarter this year.

The German economy grew by 0.8 per cent in the third quarter, analysts say figures to be released Friday will show after the nation posted a more modest 0.3-per-cent expansion rate during the three months to the end of June.

This means that the country's economy contracted by 4.9 per cent in the third quarter after slumping by a more dramatic 5.9 per cent in the three months to the end of June.

Monday's German data also followed the publication over the last week of figures showing another rise in the nation's factory orders and a surprise fall in unemployment.

While industrial orders grew by 0.9 per cent in September, Germany's Labour office said the numbers out of work in the country fell by a seasonally adjusted 26,000 to 3.43 million in October bringing the jobless rate down to 8.1 per cent. Analysts had predicted a rise in unemployment to 15,000 last month.

In the meantime, German business confidence jumped to its highest level in more than a year in October, a key survey released last month said.

Moreover, the sharp 3.8-per-cent rise in September exports came despite the recent strong performance of the euro, which breached the key 1.50-to-the-dollar mark in trading Monday.

Analysts had expected Germany's statistics office would report Monday that the world's leading export nation had posted only a 2.5-per-cent increase month-on-month in September.

German imports jumped by 5.8 per cent in September, the statistics office said, with the latest data resulting in the nation's adjusted trade surplus narrowing to 9.9 billion euros (14.8 billion dollars) from 10.6 billion in August.

But despite the positive round of economic data, analysts warn that the nation's recovery remains fragile.

Business insolvencies surged 12.3 per cent year-on-year in August, the statistics office said last week, while German consumer confidence fell for the first time in a year, a survey showed.

In particular, many believe that an only moderate economic growth rate combined with the end of government fiscal stimulus plans and support for the labour market could result in escalating unemployment, which in turn would dampen private consumption.

At the same time, Chancellor Angela Merkel's government still has to spell out in detail its tax cut proposals.

'With a worsening labour market and increasing uncertainties about the government's planned tax cuts, domestic demand could become a risk factor next year,' said ING Bank economist Carsten Brzeski.

'Consequently, the fate of the German economy would again be in the hands of its external sector,' said Brzeski.

Underscoring the scale of the economic downturn that engulfed the nation's economy over the 12 months, September exports were down 18.8 per cent compared with the same month last year. Imports were down 16.3 per cent year-on-year in September.