German Economy Bound for Recovery in Q1 of 2013

Recent updates for Germany suggest the economy might have reached the trough and may return to modest growth in 2013. Indeed, rise in domestic consumption and increase in exports to non-Euro Area countries is likely to boost the expansion in the first quarter of 2013.
Nuno Fontes | 5/14/2013 10:11:26 AM

In fact, a strong labor market with unemployment near a two-decade low and rising wages is holding domestic consumption. Although, consumer confidence decreased slightly in April, it hit a 3-year high in March. More importantly, in early 2013, shipments have been increasing as German exporters have been able to offset part of the export decline in its core European market with strong growth in to the US and emerging markets. To make things even better, in April, the DAX was at a 6-year high and bund yields were down 0.4 percentage points from a year earlier. However, on the negative side, industrial production shrunk in the first three months of the year and, in April, the IFO business climate index fell to the lowest level of 2013.

After growing 0.5 percent year-on-year in the first quarter of 2012, the German economy lost steam and contracted 0.6 percent in the last quarter of 2012. In March, exports expanded 0.5% over the previous month as the decrease in shipments to the EA (-2.6%) was offset by incresing sales to non-EA countries (+1.5%).

The Economic Sentiment Index eased by 12 points in April and was unchagend in May. Also, in March, retail trade decreased 2.8 percent on the year, indicating the country's road to recovery may be bumpy.


In April, IFO Business Climate Index decreased to 104.4, a slight drop from ten-month high of 107.4 reported in February. In March industrial production fell 2.5 percent, down from a 1.8 percent contraction in February.
In March, the unemployment rate was recorded at 5.4 percent, near its lowest level in more than twenty years.