Germany Beats Fourth-Quarter Forecast, French Economy Grows

By Jana Randow and Mark Deen - Feb 15, 2012 5:57 PM GMT+0700

Germany and France performed better than economists forecast in the fourth quarter even as the sovereign debt crisis ravaged the economies of their smaller euro-area partners.

Gross domestic product in Germany, Europe’s largest economy, fell 0.2 percent from the third quarter, beating economists’ median prediction for a 0.3 percent decline. The Federal Statistics Office in Wiesbaden also revised third- quarter growth to 0.6 percent from 0.5 percent. The French economy, Europe’s second largest, grew 0.2 percent in the fourth quarter, confounding the median forecast for a 0.2 percent contraction.

The debt crisis has damped growth across Europe’s currency bloc and pushed Greece, Portugal, Belgium, Italy and the Netherlands into recession, defined as two consecutive quarters of declining GDP. Today’s data add to signs that Germany and France may avoid that fate. German investor confidence surged to a 10-month high in February, the ZEW Center for European Economic Research said yesterday.

“We expect the German economy to move roughly sideways in the first half of this year before gaining momentum from around the middle of the year, when European policy makers should have implemented the final measures to contain the sovereign debt crisis,” said Aline Schuiling, an economist at ABN Amro in Amsterdam.

The euro rose after the French and German GDP reports before declining to trade little changed at $1.3153 at noon in Frankfurt.

Euro-Area GDP

The Italian and Dutch economies both contracted 0.7 percent in the fourth quarter from the third. Austria and Spain also reported GDP declines. The 17-nation euro economy shrank 0.3 percent in the period, the European Union’s statistics office in Luxembourg said, less than the 0.4 percent drop forecast in a Bloomberg survey.

“The fourth quarter of 2011 was very weak, but we have seen a stream of both survey and hard data that seem to point to a stabilization in economic activity at a low level,” European Central Bank President Mario Draghi said last week.

European services and factory output increased in January for the first time in five months, according to a composite index of both industries.

In December, the ECB forecast economic growth of 0.3 percent this year and 1.3 percent in 2013. It will publish new projections in March.

Borrowing Costs

The debt crisis escalated in the fourth quarter, sending Italian and Spanish bond yields soaring. Those borrowing costs have fallen since the ECB injected a record 489 billion euros ($647 billion) into the banking system in December and governments agreed to greater budget discipline.

Greece, whose economy shrank 6.8 percent last year, has agreed to austerity measures needed to secure a second bailout package that will help it stave off default. Euro-area finance ministers nevertheless canceled a Brussels meeting slated for today, citing a lack of political assurances from Greek leaders to stick to the austerity pledges.

Ministers will instead hold a teleconference to prod Greece to do more to clinch the 130 billion-euro package along with about 100 billion euros of debt relief from private bondholders. Greece needs the aid to make a 14.5 billion-euro bond payment on March 20.

Recovery ‘Expected’

German truckmaker MAN SE (MAN), controlled by car manufacturer Volkswagen AG (VOW), said yesterday that sales and operating profit will decline in 2012 as the debt crisis discourages companies from investing.

“Although a recovery is expected in the second half of the year, we must work hard to achieve our goals,” Siemens AG (SIE) Chief Executive Officer Peter Loescher said on Jan. 24 after the company reported earnings that missed estimates.

From a year earlier, German GDP (GRGDPPGY) increased 1.5 percent in the fourth quarter. The statistics office said trade and household spending had negative impacts on growth, while investment, particularly construction, boosted GDP. A detailed breakdown for the quarter will be published on Feb. 24.

The German economy grew 3 percent last year while France’s expanded 1.7 percent.

French corporate investment and exports drove fourth- quarter growth, a boost for President Nicolas Sarkozy as he prepares to declare his bid for a second term later today.

Sarkozy’s economic credentials have been damaged in recent months as France was stripped of its AAA credit rating and jobless claims jumped to their highest in 12 years.

Investment is “rebounding, notably in the car industry,” Paris-based national statistics office Insee said. “Exports remained dynamic in the fourth quarter, helped mainly by the sale of transport products, while imports fell.”

To contact the reporters on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net; Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net