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German GDP dip points to recession

The German economy has been hit by strikes and strike threats.
The German economy has been hit by strikes and strike threats.

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BERLIN, Germany -- Germany's gross domestic product shrank 0.2 percent in the first quarter of 2003, according to official data released Thursday that indicated Europe's largest economy is near recession.

CNN's Financial Correspondent Todd Benjamin said the figure was worse than expected and did not bode well for the eurozone as a whole.

The contraction in the first quarter from the final quarter of 2002 means the country is close to a technical recession, defined as two successive quarters of contraction.

"If you ask anyone in Germany that's a recession," Benjamin said, saying the rising euro and unemployment in Germany had piled on the pressure for Chancellor Gerhard Schroeder.

The fall, adjusted for seasonal factors and differences in the number of working days, contrasted with a forecast of a 0.1 percent increase in a Reuters poll of 19 economists, the data from the Federal Statistics Office showed.

The contraction in Germany, which accounts for about a third of the entire 12-nation eurozone economy, may disprove economists' forecasts of 0.1 percent growth in eurozone GDP in the first quarter, also due to be released Thursday.

Year-on-year, first-quarter GDP grew 0.5 percent, the Office said. Adjusted for the number of working days, growth was smaller at 0.2 percent. Economists polled by Reuters had predicted a year-on-year rise of 0.6 percent.

Eurozone recovery hopes have taken a knock recently as business and consumer confidence surveys have failed to receive any notable boost from the end of the Iraq war.

Analysts were surprised by the weak data and said they would have to reassess their growth forecasts for the full year.

"It's clearly below expectations. We are currently forecasting full-year growth of 0.5 percent. We are certainly going to have to look into that," Ralph Solveen, an economist at Commerzbank, told Reuters.

"It doesn't change too much for the government, but it will come as a surprise to the European Central Bank."

In a statement, the Statistics Office attributed the fall in economic output in the first quarter to the faster increase in imports than exports.

The economy contracted slightly in the final quarter of last year, with the Statistics Office reporting growth of "minus zero" for the period.

The German economy sank into recession in the second half of 2001 and has recorded only meagre growth in subsequent quarters. The country has been plagued by weak demand and falling prices for its manufactured goods, as well has rising unemployment and nationwide labour disruptions.

GDP data released for Italy Thursday also showed an economy grinding to a standstill. (Full story)

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