Jump in private consumption helps Germany avoid recession in third quarter

[November 25, 2014]  By Noah Barkin
 
 BERLIN (Reuters) - A sharp rise in private consumption more than compensated for stubborn weakness in investment to help the German economy post modest growth in the third quarter and avoid a technical recession, data showed on Tuesday.

The Federal Statistics Office confirmed an earlier flash estimate showing a 0.1 percent rise in seasonally-adjusted gross domestic product (GDP).

Private consumption rose 0.7 percent quarter-on-quarter, the biggest increase in three years, and public investment rose 0.6 percent. Overall consumption contributed 0.5 percentage points to growth, while trade provided modest support.

On the downside, investment in equipment tumbled by 2.3 percent, while gross capital and construction investment also fell. Overall, investment subtracted 0.7 percentage points from GDP growth in the quarter.

But in a positive sign for the fourth quarter, inventories were a major drag on growth, suggesting a rebound in the final months of the year.
 

"We are not in a recession," Finance Minister Wolfgang Schaeuble told parliament after the data was released.

"We don't have quite such good economic growth as we did before but we are performing close to our economic capacity. We can't allow thoughtless chitchat about a 'crisis' to encourage one."

He defended Chancellor Angela Merkel's "grand coalition" government against accusations that it is not investing heavily enough in infrastructure, spending that critics say is vital to help spur growth in Europe.

After the German economy contracted by 0.1 percent in the second quarter, some economists had feared it would sink into a technical recession with another drop in the third, weighed down by weakness in key euro zone trading partners such as France, a slowdown in China and uncertainty from the Ukraine crisis.

But Germany managed to eke out some growth and now appears to be regaining momentum. On Monday, a closely-watched measure of business sentiment from the Munich-based Ifo think tank rebounded strongly, helped by a drop in the euro to two-year lows against the dollar and by a decline in oil prices.

Low unemployment, rising wages and rock-bottom interest rates are also providing support.

Still, Germany no longer looks like the "growth locomotive" that defied the euro zone crisis to grow strongly in 2010 and 2011.

(Writing by Noah Barkin; Additional reporting by Stephen Brown and Erik Kirschbaum; Editing by Kevin Liffey)

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