Why Germany’s economy expanded less than forecasted ..?

Germany’s economic growth probably slowed last quarter in a sign of the fragility of the euro area’s nascent recovery.

Gross domestic product in Europe’s biggest economy probably increased about a quarter of a percent in the three months through December, compared with 0.3 percent in the third quarter, the Federal Statistics Office said in Berlin today. Full-year growth was 0.4 percent, missing the 0.5 percent median estimate by economists in a Bloomberg Newssurvey. The nation’s 2013 budget deficit was 0.1 percent of GDP, compared with a prediction for a balanced budget.

Germany, the first of the Group of Seven nations to report fourth-quarter growth data, is key to sustaining the recovery in the 18-nation euro area, where unemployment is at a record high and bank lending is still contracting. The European Central Bank held its benchmark interest rate at a record low of 0.25 percent last week and President Mario Draghi said risks to the regional economy remain on the downside.

“Germany’s weak 2013 GDP growth highlights the impact of the euro crisis even on the strongest euro-zone economy,” said Christian Schulz, an economist at Berenberg Bank in London. “On the positive side, consumption growth was resilient in 2013 and the beginning global recovery should allow Germany to grow at trend rates in 2014.”

Record Sales

Germany’s DAX (DAX) stock index rose as much as 1.1 percent to a record. The euro slid 0.4 percent to $1.3626 at 12:20 p.m. Frankfurt time.

The Statistics Office is scheduled to release a revised estimate of fourth-quarter GDP on Feb. 14. Its flash estimate for the final quarter of 2012 of minus 0.5 percent was eventually revised to minus 0.7 percent.

Private consumption climbed 0.9 percent in 2013 whilegovernment spending rose 1.1 percent, today’s report showed. Imports increased 1.3 percent, and exports gained 0.6 percent. Capital investmentdropped 2.2 percent.

The Bundesbank projected in December that German GDP would expand 1.7 percent in 2014 and 2 percent in 2015, saying that the “economy is in good shape, the unemployment rate is low, employment is rising and wage growth is returning to normal.”

Hanover-based Continental AG (CON), Europe’s second-largest auto parts maker, said this week it plans a fifth consecutive year of record sales. Wolfsburg-based Volkswagen AG (VOW), Europe’s largest automaker, said on Jan. 11 that sales rose to more than 9.7 million vehicles in 2013, with the record deliveries fueled by growth in demand for Audi and Porsche luxury cars.

Recession Effect

Growth in the euro-area, Germany’s biggest export destination, almost stalled in the three months through September after snapping six quarters of contraction, its longest-ever recession, in the prior period. The ECB estimates GDP growth for the bloc of 1.1 percent this year and 1.5 percent in 2015.

“Obviously, the German economy suffered from the continuing recession in some European countries,” Roderich Egeler, president of the Federal Statistical Office, said in a statement. “The strong domestic demand could offset those factors only to a limited extent.”

Amid the weak outlook and euro-area inflation that is less than half its target of just under 2 percent, the Frankfurt-based ECB has pledged to keep interest rates low for an extended period.

Upside Potential

Still, the region’s economic confidence rose more than expected in December and retail salessurged in November, signaling the recovery may be sustained.

“The view for Europe as a whole is now much better than a year ago,” ECB Governing Council member Ewald Nowotny said this week. “There is even potential on the upside,” he said, adding that “maybe some countries like Germany or Austria might reach 2 percent growth” this year.

“Europe is still cleaning up after the crisis and Germany is the main reason why the euro-area economy is back to growth,” said Andreas Moeller, an economist at WGZ Bank in Dusseldorf. “Private consumption was the key for Germany’s expansion last year and it will be vital in 2014 as well.”

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