German economy in ‘recession’

German gross domestic product (GDP) contracted by 0.1 percent in the period from April to June from the preceding three months, the Federal Statistics Office in Wiesbaden calculated.

  

The German economy had already contracted by 0.2 percent on a quarterly basis in the first quarter of 2003 and clocked up a “red zero” — a minimal contraction — in the last quarter of 2002.

 

The new data effectively mean that Germany remained in recession, technically defined as two consecutive quarters of negative growth.

 

Denial

  

But the government swiftly denied that such marginal declines in GDP could justifiably be termed a recession.

  

“I would not speak of a recession at this stage.There was stagnation in the first two quarters.”  —GermanChancellor Gerhard Schroeder

“I would not speak of a recession at this stage,” Chancellor Gerhard Schroeder told a television interviewer. “There was stagnation in the first two quarters.”

 

Economy Minister Clement took the same line.  The second-quarter GDP data is “by no means a signal that Germany is in recession,” he said.

  

For the government, external factors, notably the strong euro and weak global demand, were to blame for the renewed decline in GDP in the second quarter.

 

The development “primarily reflects the still weak global environment combined with the stronger euro,” Clement said.

  

That interpretation was backed up not only by the Federal Statistics Office itself, but by economists as well.

  

Commerzbank economist Ralph Solveen said, “The main reason for the contraction in GDP was a downturn in exports, thanks to the global economy remaining rather sluggish and the euro appreciating.”

 

Negative factors

  

CDC-Ixis economist Guilhem Savry said that the second-quarter data was also hit by negative factors, such as the fallout from the invasion of Iraq on the financial markets and on confidence, as well as the manufacturing sector strikes in eastern Germany.

  

And with business and investor confidence now rising, the data “could have marked the bottom for the German economy,” Savry said.

  

Both Schroeder and Clement also believed that Germany’s economic fortunes were about to take a turn for the better. “There are small but important indications that things could get better.”, Schroeder said.

  

And Clement added, “On the basis of current indicators, we are expecting a slight recovery in the second half of the year and the beginnings of the economic turnaround we so urgently need.”