Harsh Winter Halts Growth: German Budget Deficit Hits 3.3 Percent of GDP

Germany's budget deficit grew more than expected in 2009 as a result of the economic crisis and reached 3.3 percent of GDP, exceeding the euro zone limit of 3 percent. The economy may contract again in the first quarter due to the harsh winter, but the falling euro is brightening the outlook for export industries.

Ice in Hamburg's port: The harsh winter has hit Germany's economic recovery. Zoom
DPA

Ice in Hamburg's port: The harsh winter has hit Germany's economic recovery.

Germany's budget deficit for 2009 has been revised up to 3.3 percent of GDP from a previous estimate of 3.2 percent, and the economy didn't grow at all in the fourth quarter, Germany's Federal Statistics Office announced on Wednesday.

The deficit is above the 3 percent limit set by the Maastricht Treaty on European monetary union and was driven up by the economic crisis and the government's stimulus packages totalling €50 billion ($68 billion), which were launched last year. In 2008, Germany balanced its budget with a 0.0 percent deficit. Last year was the first time Germany exceeded the EU deficit limit since 2005.

The Bundesbank, Germany's central bank, projects that the deficit may rise to 5 percent in 2010 due to higher public spending as a result of increasing unemployment, and continued weak economic growth. The German Finance Ministry is even predicting a deficit ratio of 5.5 percent this year, but plans to push it back down below 3 percent by 2013.

But Germany is still doing significantly better than other euro member states. Greece reported a 2009 deficit of 12.7 percent, followed by Ireland and Spain with more than 10 percent. Concern over Greece's creditworthiness has led to a sharp depreciation of the euro in recent weeks.

Recovery Has Halted

Germany suffered its worst economic slump since World War II last year but managed to exit recession -- classified as two consecutive quarters of GDP contraction -- in the second quarter of last year. However, the tentative recovery ground to a halt in the final quarter of 2009.

The statistics office on Wednesday confirmed preliminary figures which showed that real fourth-quarter GDP, adjusted for seasonal and calendar factors, was unchanged from the previous quarter, and down by a calendar-adjusted 2.4 percent from the year-earlier period.

Wednesday's data followed bad news on Tuesday of a decline in the country's main leading economic indicator, the Ifo business climate index, which dropped for the first time in almost a year in February. That indicates Europe's largest economy may fall back into contraction in the first quarter of 2010, economists said.

The Ifo index, released by the Munich-based Ifo institute, is based on a monthly survey of some 7,000 firms. It fell to 95.2 in February from 95.8 in January. Ifo said the decline was largely due to poor sentiment in the retail sector, possibly as a result of the unusually harsh winter weather.

The gloomy retail outlook was confirmed on Wednesday with the release of the closely-watched GfK consumer sentiment index which showed consumer confidence stagnating amid worries over the economic outlook as well as the possible impact of Greece's debt crisis on Europe.

''Public discussion of the precarious budgetary situation of Greece and some other European countries is also unsettling consumers, as they fear negative effects on Germany's economic development,'' the GfK market research group said.

But it's not all doom and gloom. The depreciating euro is good for German industry because it makes exports cheaper outside the euro area. Economists said that, in the coming months, the economy may make up the ground it lost over the winter.

cro -- with wire reports

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