Germany Slips Into Recession

Germany's economy is in a recession after output fell more sharply than expected in the third quarter amid a downturn in exports. Gross domestic product in Europe's biggest economy fell by 0.5% in the third quarter, following a 0.4% contraction in the previous quarter. Two successive quarters of contraction are a common definition of a recession. The third quarter fall in growth was much worse than market expectations of around 0.1%. With global demand for German goods still falling and no recovery in sight, many forecasters expect the economy to contract further in coming quarters. The increasingly bleak outlook could raise pressure on Germany's government to do more to boost the economy through fiscal policy. So far, however, Chancellor Angela Merkel's government has rejected calls for tax cuts or greatly increased spending, including from her own economics minister and a government panel of economic advisers. Instead, Berlin plans only a modest set of tax breaks, including for new-car purchases and building renovations. Germany's government statistics office said the economy suffered in the last quarter, which ended Sept. 30, from the impact of higher imports and lower exports. A rise in private consumption, government spending rose and company inventories prevented a worse contraction. Compared with the year-earlier period, the economy grew 0.8% in the third quarter in calendar adjusted terms, the statistics office said. A Dow Jones Newswires survey of economists had predicted a contraction of 0.1% on a quarter-to-quarter basis and a rise of 1% on an annualized basis. Economists point to signs of more bad news to come before there is any recovery, which in the best-case scenario is now expected in the second half of next year. "The full impact of the financial crisis still has to unfold," said Carsten Brzeski, economist at Global Economics ING Financial Markets in Brussels. "At the earliest, a recovery can be expected in the second half of 2009, when the combined impact of aggressive monetary easing, fiscal stimulus and the external tailwind -- that is, a weaker euro and lower oil prices, should finally feed through into the economy." The statistics office revised second-quarter GDP to -0.4% on a quarter-to-quarter basis from a preliminary reading of -0.5%. It also revised the GDP growth for the first quarter to 1.4% compared with the previous quarter from preliminary growth of 1.3%.