The modest recovery of the German economy ran out of steam in the third quarter, official data showed Thursday, as exports, previously the main driving force behind growth of the eurozone's biggest economy, slumped on the back of the global economic slowdown. German gross domestic product (GDP) shuddered to a near-halt in the period from July to September, growing by a meagre 0.1 percent, the federal statistics office Destatis calculated.
Growth was therefore not only much slower than 0.4 percent recorded in both of the preceding two quarters, but it was also slower than analysts' expectations for third-quarter GDP growth of around 0.3 percent. In fact, it was the slowest rate of growth of the German economy since the second quarter of 2003, the final quarter of the last recession.
Destatis attributed the sharp slowdown to falling exports. "Together with a relative strong rise in imports, the decline in exports led to a negative growth effect of the export surplus," the statisticians explained. Exports, previously the main engine of German economic growth, have been hit by the slowdown in growth of the global economy.
The Bundesbank has already warned of an anticipated slowdown in third-quarter growth as higher oil prices put the brakes on economic activity world-wide.
It was not all bad news, however.
Domestic demand, previously seen as the Achilles' heel of the German economy, picked up strongly in the third quarter, Destatis noted.
"Positive growth effects came from the strong rise in domestic demand, which was primarily attributable to a sharp increase in equipment spending and substantial stock-piling," the statistics office said. Nevertheless, household spending, a key component of recovery, remained depressed.
A more detailed breakdown of German GDP growth in the third quarter would be published on November 23, Destatis said.
But the disappointing figure would likely trigger a substantial downward revision in full-year growth forecasts, analysts said.
For the whole of 2004, the German government is currently forecasting full-year GDP growth of around 1.8 percent.
Deutsche Bank economist Stefan Bielmeier said activity might pick up slightly to around 0.2 percent in the fourth quarter, but this would still leave full-year growth well below earlier forecasts.
"For the whole year we will probably have to revise down our GDP forecast from 1.9 percent to 1.7 percent," he said.
Indeed, adjusted for the number of working days, 2004 growth was now set to come out at around 1.2 percent, Bielmeier calculated.
A large part in the pick-up in German growth this year has been due to the fact that many public holidays fell on weekends, leading to a higher number of working days.
Ixis economist Sylvain Broyer suggested the pronounced weakness of exports likely reflected the sharp rise in oil prices.
UBS economist Holger Fahrinkrug also believed "the surprising weakness in third-quarter GDP is likely to trigger down revisions to 2004 and 2005 GDP forecasts."
Exane economist Emmanuel Ferry said the data showed that the export-orientated German economy was particularly vulnerable to the strong euro, high oil prices and the global slowdown.
"Against this background, German growth should amount to 1.2 percent in 2004 and our best-case forecast for 2005 is just 1.0 percent," Ferry said.
With the German recovery effectively cut short, the European Central Bank would likely hold off any upward moves in interest rates until after 2005, the Exane economist continued.
"Indeed, there's even room for a downward move in ECB rates if the euro continues to rise or even the current economic trend is confirmed," Ferry concluded.
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