BUSINESS

German economy returned to growth of 0.1 per cent in 1st quarter, avoided recession

05/15/2013 02:12 EDT | Updated 07/14/2013 05:12 EDT
BERLIN - The German economy managed to avoid sinking into recession during an unusually cold first quarter, but only just, official figures showed Wednesday.

Europe's biggest economy grew by 0.1 per cent in the January-March quarter compared with the previous three-month period, Germany's Federal Statistical Office said. That followed a 0.7 per cent decline in last year's fourth quarter, a figure that was revised downward from the initial reading of 0.6 per cent.

The increase was lower than anticipated — the consensus in the market was for a 0.3 per cent quarterly rise.

If the first quarter figure had shown a decline, then Germany would have been in recession — technically defined as two straight quarters of negative economic growth.

Extremely cold weather that dragged on until the end of March was one factor behind the feeble growth figure, the statistics office said. Winter conditions typically hurt industries such as construction.

UniCredit economist Andreas Rees argued that the data "should be taken with a pinch of salt, or maybe even two" because of the unusual weather.

Despite the subdued first-quarter performance, Germany is in better shape than almost all the 17 European Union countries that use the euro. Though recent economic indicators have been mixed, the key industrial sector has been robust and unemployment remains relatively low.

Looking ahead, prospects for Germany are improving now that the hard winter is over, said Carsten Brezski, an economist at ING in Brussels.

"Industry is gaining pace as order books have started to fill again and companies are cautiously stepping up their investment plans," he said. "Moreover, domestic demand with the solid labour market and wage increases have become a reliable growth driver."

The economy's relative health has fueled demands for big pay increases in several sectors.

Early Wednesday, the IG Metall union secured a solid raise for some 3.7 million workers in the key industrial sector, a deal that heads off the threat of strikes.

Under the deal reached by negotiators in Bavaria, which is expected to be extended to the rest of the country, workers will get a 3.4 per cent raise in July followed by another 2.2 per cent next May. The agreement runs until the end of next year.

IG Metall initially sought a raise of 5.5 per cent this year alone, arguing that companies in Germany could afford it and that it would bolster private spending. But union chairman Berthold Huber said that employees "will get a fair and appropriate share of economic developments" under the deal now reached.