German economy stalls

January 17, 2002 Posted: 1440 GMT

LONDON (CNN) -- The German economy turned in its worst performance in almost a decade in 2001, as the global slowdown hurt exports and hampered investment.

The Federal Statistics Office said on Thursday that Germany's gross domestic product grew by just 0.6 percent last year, compared to a 3-percent expansion in 2000.

It was the lowest annual growth rate since the 1993, when the economy shrank 1.1 percent.

Europe's biggest economy ground to a halt around mid-2001and continued to slow for the rest of the year, the statistic office said, aggravated by the September 11 attacks in the U.S.

The office did not provide figures for the fourth quarter, but many analysts believe the economy contracted by 0.5 percent in the last quarter.

"It's the lowest level of growth for almost a decade and the government had indicated it was expecting something in the region of 3 percent," Ken Wattret, chief European economist at BNP Paribas, told CNN.

"So the fact we got growth of about half a percent tells you how poor the performance was over the last year."

Market reaction to the poor numbers was muted, as most analysts had expected a slightly better full-year GDP growth of about 0.7 percent.

On Thursday, the statistics office also reported the sharp slowdown pushed last year's budget deficit to 2.6 percent, up from a target of 1.5 percent, and close the 3-percent ceiling set by the European Union's Stability and Growth Pact.

Publicly traded companies in German have cut about 130,000 jobs in the past year as global demand weakened. Employment rose for the 12th consecutive monthly in December, with the jobless rate edging up to 9.6 percent from 9.2 percent in November.

About one in five German jobs depends on exports, and about one fifth of Europe's exports go to the U.S. With the U.S. falling into recession last year for the first time in a decade, Germany – along with other major eurozone economies – saw factory orders and manufacturing output decline in 2001.

Export growth slowed to 5.1 percent in real terms in 2001 from 13.2 percent in 2000, while investment fell 3.4 percent compared with a 8.7 percent rise in 2000.

Still, there are signs the German economy is beginning to recover, as inflation slows and consumer confidence returns.

Retail sales grew by a surprising 1.6 percent in November, although sales still declined on a year-on-year basis by 0.4 percent. The key Ifo business indicator rose in November for the first time since July.

Many economists expect an upturn in the German economy later this year, thanks to the four interest rate cuts by the European Central Bank last year and prospect for an upturn in the U.S.

"Germany is now looking for a U.S. recovery and the hope is that this will feed through to the eurozone economy in the next few months, and I think it will," BNP Paribas' Wattret said.

"But in the meantime, we're going to see more signs of weakness in the German and Eurozone economies."