German economy stutters to halt in late 2009 - statistics

Europe's biggest economy stuttered to a halt late last year and consumer sentiment continued to fall in the following months but analysts say another German recession is not in the cards.

German activity stagnated in the fourth quarter of 2009, with statistics released on Wednesday confirming zero growth from October through December as consumers cut back and companies slashed inventories.

"The slight upward trend observed for the economy in the second and third quarter of 2009 did not continue," the Destatis statistics office said in a statement.

A key reason was a one percent drop in household consumption, which along with slumping corporate investment and lower public spending left trade as the only contributor to gross domestic product (GDP).

Companies cut inventories to meet export demand, but Goldman Sachs economist Dirk Schumacher said: "We expect a strong rebound in industrial activity at the beginning of 2010."

Consumption had been underpinned by a cash-for-clunkers premium for the auto industry that expired in September and "consumption... after the car scrap scheme does not exist," ING senior economist Carsten Brzeski noted.

German consumer sentiment has fallen steadily and marked its fifth decline in a row when the GfK research institute released its latest barometer, which dipped to an indexed 3.2 points for March from 3.3 points in February.

Concerns about rising unemployment and the effect of debt and deficit crises in southern Europe are weighing on sentiment, the research group said as German households continued to favour saving over spending.

Boosting domestic demand remains crucial to a sustained economic rebound, but Capital Economics economist Jennifer McKeown said the steadily falling index "suggests that a consumer recovery remains a distant prospect."

The GfK poll was released a day after the Ifo institute said German business confidence had slipped unexpectedly for the first time in nearly a year.

Other analysts underscored sustained demand for German products however and said that once winter weather had passed, the economy would get back on track. "Jack Frost is causing substantial disruptions in construction activity and also retail sales," UniCredit economist Alexander Koch said.

AFP