German economy surged by 3.6 percent in 2010

[January 12, 2011]  BERLIN (AP) -- The German economy grew last year by a powerful 3.6 percent, its fastest pace since reunification two decades ago, as a rebound in exports was accompanied by strengthening domestic demand, official data showed Wednesday.

The preliminary growth figure for Europe's biggest economy contrasted with a painful contraction of 4.7 percent in 2009, which was by far its worst showing since World War II.

Germany's swift recovery has made it a standout in the 17-nation eurozone, where smaller economies such as Ireland, Greece and Portugal have been struggling with huge debts.

"We grew twice as fast as the European Union average," said Economy Minister Rainer Bruederle, who had forecast growth of 3.4 percent. The figures show that "people are rightly looking optimistically into the future," he added.

A key trigger for the strong recovery was powerful growth in exports into a recovering world economy -- a 14.2 percent gain last year reversed a 14.3 percent decline in 2009. Germany is the world's second-biggest exporter after China.

However, "what was striking in 2010 was the fact that economic growth was not only based on foreign trade, but also on domestic demand," the Federal Statistical Office said in a statement.

Investment in machinery and equipment was up 9.4 percent, following a huge decline of 22.6 percent the previous year. Household spending rose 0.5 percent, recovering from 2009's 0.2 percent decline.

Imports rose 13 percent, more than making up a 9.4 percent drop the previous year.

Germany has been helped by tame unemployment, which stood at 7.2 percent in December. It was kept in check at the height of the financial crisis as a government-subsidized short-time work plan allowed employers to reduce production without cutting employees, and has fallen over recent months.

The DIW economic institute said German companies' specialization in so-called investment goods that draw strong foreign demand helped the country to bounce back, and firms were able to adjust quickly to the upswing because they had kept well-qualified staff.

However, DIW economist Ferdinand Fichtner cautioned against getting carried away.

After the huge decline in 2009, "catch-up effects contributed in large measure to the strong growth, and the foreign demand that has been strong so far is likely to be a bit more muted in the future," he said.

Even so, Germany's economy should grow by a respectable 2.2 percent in 2011 and the recovery "is broad-based," Fichtner added.

The statistical office did not immediately release a figure for fourth-quarter growth -- that is due only in mid-February.

However, ING economist Carsten Brzeski estimated that the economy grew by about 0.6 percent compared with the third quarter, slowing slightly from the previous quarter's figure of 0.7 percent because of hard winter weather in December.

Wednesday's data showed that Germany's budget deficit came in at 3.5 percent of gross domestic product last year -- exceeding the 3 percent limit laid down by European Union rules for the first time in five years.

In 2009, Berlin just managed to comply, with a deficit of 3 percent.

"Just remember that less than a year ago, the German government still expected a 2010 deficit of 5 1/2 percent of GDP," Brzeski said, adding that the outcome is "a good illustration of the importance of economic growth for public finances."

Austerity measures being implemented this year and further economic growth should push the deficit back below 3 percent this year, he said.

[Associated Press; By GEIR MOULSON]

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