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 Exports slumped by 5.8 percent, the biggest drop since January 2009,
in the latest sign that Europe's largest economy is faltering amid
broader euro zone weakness and crises abroad that have battered
confidence and led German firms to postpone investment plans.
"The economy seems to need a small miracle in September to avoid a
recession in the third quarter," said Carsten Brzeski, an economist
at ING.
The Federal Statistics Office said late-falling summer vacations in
some German states had contributed to a fall in both exports and
imports, but the figures still painted a gloomy picture for an
economy that until recently was hailed in Berlin as Europe's "growth
locomotive".
Earlier this week, industrial orders and output data suffered their
steepest drops in more than five years.
Hours after the trade data was released, a group of leading economic
institutes joined the International Monetary Fund (IMF) in slashing
forecasts for German growth. The institutes are now expecting growth
of 1.3 percent this year and 1.2 percent next, down from 1.9 and 2.0
percent previously.
The institutes also urged the government to cut corporate taxes,
spend more on infrastructure and education, and take steps to
encourage private investment, stressing that there was sufficient
"financial room for maneuver".
Chancellor Angela Merkel's government has faced pressure from within
Germany as well as from ailing European states such as France and
Italy to ratchet up public investment instead of prioritizing
deficit reduction.
So far, however, Berlin has made clear that its top priority is to
deliver on its promise of a "schwarze Null" - a federal budget that
is in the black, or fully balanced - in 2015.
"PRESTIGE PROJECT"
The institutes criticized this dogged focus, with Ferdinand Fichtner
of Germany's DIW research institute criticizing the balanced budget
goal as a "prestige project" with "no immediate economic
significance".
"There are surpluses in the public budget which could be used to
increase investment," he told a news conference to present the
institutes' report. "I don't believe the schwarze Null is
appropriate at the moment from an economic point of view."
The institutes also criticized Merkel's 10-month-old government for
dampening growth by introducing a minimum wage and allowing some
workers to retire early at 63 with full pension benefits. These
remain unpopular with some in her party.
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"It is plain that many of the government's policies have dampened
instead of supported growth," Joachim Pfeiffer, a lawmaker in
Merkel's Christian Democrats (CDU) told Reuters.
He called for using Germany's fiscal wiggle room to boost
investments and provide tax incentives that fostered more private
spending.
Germany had a strong start to the year but shrank by 0.2 percent in
the second quarter. Evidence is mounting that it barely grew in the
third quarter and some economists are forecasting another
contraction in that period, which would amount to a technical
recession.
The IMF, European Central Bank and Berlin's partners in Rome and
Paris have all called on Merkel to spend more to avert a new
European recession and a Japanese-style deflationary spiral.
British finance minister George Osborne warned on Thursday that the
euro zone risked "slipping back into crisis".
A growing number of economists argue that decades of weak investment
in Germany have turned into the Achilles heel of the economy. The
DIW institute estimates that the country is suffering from an annual
investment gap of 80 billion euros.
At the start of the 1990s, public and private investment represented
23 percent of German gross domestic product (GDP). Now it is
hovering around 17 percent - compared to an OECD average of 20
percent.
(Additional reporting by Stephen Brown, Andreas Rinke and Gernot
Heller; Editing by Noah Barkin and Alison Williams)
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