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German exports contract in 4th Qtr.

Friday, February 22 07:51:02

A plunge in exports drove a contraction in German gross domestic product (GDP) in the fourth quarter, offsetting support from domestic demand, and highlighting the vulnerability of Europe's largest economy to weakness in its euro zone trading partners.

Seasonally adjusted data from the Federal Statistics Office confirmed an earlier flash estimate showing Germany GDP shrank by 0.6 percent in the last three months of 2012 versus the previous quarter.

That was the biggest fall since the economy shrank by 4.1 percent at the start of 2009 and only the second contraction since the 2008/09 recession. Foreign trade deducted 0.8 percentage points from GDP while domestic demand added 0.2 percentage points.

"The data from the fourth quarter is relatively bad. That was a one-off," said Ulrike Kastens at Sal. Oppenheim.

"For the current quarter we expect to see growth again. Exports will probably revive and domestic demand will develop stably."

Most economists say the German economy is on the road to recovery again and expect it to return to growth in the first quarter, thereby avoiding the second consecutive quarter of contraction that would put the country in a technical recession.

But while sentiment indicators from Germany now point to a solid first-quarter German rebound, the hard data suggest a milder recovery after the dismal fourth quarter.

The most recent data for exports, industrial orders and output point to only a slight uptick.

The Ifo index, due out at 0900 GMT, is expected to show that morale among German businesses has improved for the fourth month running this month, boding well for future investments.

TRADE FALLS

Friday's breakdown of GDP data showed exports dropped by 2.0 percent in the fourth quarter while imports fell by 0.6 percent, boding ill for struggling euro zone states which had hoped to offload more of their goods on Germany, where rising wages, high employment and moderate inflation have boosted domestic demand. ( C) Reuters