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Forex News – German GDP growth for 2013 positive at 0.4% but weaker-than-expected
January 15, 2014 3:13 pmVideo
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2013 was another lackluster year for the German economy, as it only expanded by 0.4%, lower than economists’ expectation for an expansion of 0.5%. Growth for 2013 was down from the 0.7% rate posted during 2012.
Overall one could say the German economy did not do well, until it is compared with the entire Eurozone economy. Eurozone GDP growth has not come out yet as Germany was the first major developed country to announce a preliminary GDP growth rate for the previous year. According to the European Commission however, GDP for the Eurozone is estimated to have shrunk by 0.4% during 2013, following a 0.7% contraction in the previous year.
The forecast for 2014 is that growth in Germany will pick up to 1.7%, while the Eurozone is expected to grow by 1.1%. Therefore to say that Germany is the steam engine of the Eurozone economy is a stretch given these low growth rates. One area that Germany is indeed doing a lot better than the rest of the Eurozone is unemployment. Unemployment in Germany was around 5.4% during 2013, while for the Eurozone it is more than double that figure at 12.2%.
Low unemployment apparently helped Germany by boosting consumer spending at a time when the country’s exports faced a challenging environment. Private consumption rose by 0.9% and was the main influence behind Germany’s positive growth rate.
Germany is also doing much better than the rest of Europe in terms of its public finances. Together with the GDP data, the first estimate of the budget deficit of 2013 was announced. The number missed expectations of a balanced budget (deficit 0% of GDP), as it came in slightly lower at -0.1% of GDP. With the Eurozone average for 2013 expected to be a deficit of 3.1% of GDP, again this is a key difference. Government spending also expanded by 1.1% in Germany, whereas it needs to be reduced in most other Eurozone countries – not only the ones in memorandum.
In a slow-growth environment – both in Germany but internationally as well – businesses were not confident enough to invest. Capital investment dropped by 2.2%. Imports rose by 1.3% on strong domestic demand but exports rose less by 0.6%, as external trade pushed the growth rate lower.
Better conditions are expected in 2014, as the Eurozone economic recovery will pick up and the OECD today projected faster growth for advanced economies during 2014 according to its rising composite index of leading indicators. Better US growth should help German growth but something that should perhaps worry German policymakers is what happens in the case that China slows down. German economic policy and industrial planning was specifically designed so as to reap benefits from growth in the world’s second largest economy.
Overall today’s report, despite the slight miss, confirms that the German economy is doing better than its Eurozone peers and will likely post improved but moderate growth in 2014. The Eurozone economic recovery should continue at a slow pace and it remains to be seen whether the euro can strengthen on the back of this trend or if the European Central Bank will at some point be forced to take additional easing action, hitting the single currency.
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