German Economic Recovery Accelerated in Third Quarter

By Jana Randow

Nov. 13 (Bloomberg) -- Germany’s economic recovery accelerated in the third quarter as government stimulus programs fueled company spending and a rebound in global trade boosted exports.

Gross domestic product increased a seasonally adjusted 0.7 percent from the second quarter, when it rose 0.4 percent, the Federal Statistics Office said in Wiesbaden today. The median estimate in a Bloomberg News survey of 35 economists was for growth of 0.8 percent. French GDP gained 0.3 percent in the quarter, half the increase forecast by economists, and the Italian economy also grew less than expected.

Chancellor Angela Merkel’s government is spending 85 billion euros ($126 billion) to haul Europe’s largest economy out of its worst recession since World War II. Germany’s recovery probably helped the 16-nation euro area return to growth in the third quarter. Eurostat, the European Union’s statistics arm in Luxembourg, publishes data for the region at 11 a.m. today.

“It’s quite a healthy pace of recovery for the German economy,” said Giada Giani, an economist at Citigroup in London. Taking the French data into account, “the euro area will still post a pretty solid reading, although probably not as strong as some might have expected.”

The euro rose after the German report, trading 0.3 percent higher at $1.4890. The yield on the German 10-year benchmark bond fell 2 basis points to 3.34 percent.

European Recovery

Economists predict euro-region growth of a 0.5 percent in the third quarter as its biggest members shake off their recessions. Still, France, which like Germany resumed growth in the second quarter, was expected to post a 0.6 percent increase in GDP in the three months through September.

Italian GDP grew 0.6 percent, less than the 0.8 percent forecast by economists. Austria’s economy expanded 0.9 percent in the quarter and Dutch GDP rose 0.4 percent.

The U.S. economy, the world’s largest, also started to grow again in the third quarter. By contrast, the U.K.’s contracted 0.4 percent, prolonging its worst recession on record, and Spain’s shrank 0.3 percent.

Today’s data may fortify the European Central Bank in its plan to start withdrawing emergency measures designed to help the economy through the financial crisis. President Jean-Claude Trichet signaled last week that the ECB, which has cut its benchmark interest rate to a record low of 1 percent, is unlikely to offer commercial banks 12-month loans next year.

Growth Drivers

Exports and investment in equipment and construction were the main drivers of growth in Germany in the quarter, the statistics office said. Imports also rose “strongly,” contributing to an increase in inventories. Private consumption was a drag on growth, the office said.

From a year earlier, the economy shrank 4.8 percent when adjusted for the number of working days. The government last month raised its economic outlook, forecasting expansion of 1.2 percent in 2010 after a 5 percent contraction in 2009.

“The bad times are over but the good times have not started yet,” said Carsten Brzeski, senior economist at ING in Brussels. “The export-driven recovery is all well and good but in order to shift into a higher gear, the German economy needs domestic demand.”

Germany’s benchmark DAX share index has eased 1 percent in the past month amid concern the recovery will slow when government stimulus measures peter out and higher joblessness constrains spending. Investor confidence fell more than economists forecast in November.

Rising Unemployment

The government’s so-called cash-for-clunkers program, which boosted domestic sales at carmakers such as Volkswagen AG and Daimler AG in the first half of the year, expired in September.

Some companies have shed staff in order to boost profits. HeidelbergCement AG, Germany’s biggest cement maker, said on Nov. 4 that it is “very optimistic” for 2010 and 2011 as the construction industry emerges from its worst slump in decades and cost-cutting efforts pay off. Heidelberg reduced its workforce by almost 9,000 this year.

Euro-region unemployment will jump to 10.9 percent in 2011 from 9.7 percent currently, the European Commission predicted on Nov. 3. It expects the economy to expand 0.7 percent in 2010 after contracting 4 percent this year.

Exports may also falter if a rebound in global trade runs out of steam and the euro continues to strengthen. The currency has appreciated 19 percent against the dollar since mid- February, making European goods more expensive abroad.

Stronger Euro

“The strong euro is turning more and more into a problem,” said Joerg Lueschow, an economist at WestLB in Dusseldorf. “Global trade isn’t as dynamic as before the crisis. As a result, competition is getting stronger and exchange rates matter more than in times of strong demand.”

Germany’s statistics office revised second-quarter growth from 0.3 percent. It may also revise today’s figures when it publishes a detailed breakdown for the third quarter on Nov. 24.

“Orders and sentiment indicators suggest that the economy will continue to develop favorably in the months ahead,” said Alexander Koch, chief German economist at UniCredit in Munich. “Growth will slow somewhat, but the recovery remains solid.”

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net.