German economy endures worst performance since 2009

Europe's financial woes deepened today as its two largest economies reported faltering economies.

The German economy shrank by a larger-than-expected 0.6% in the final quarter in 2012, official figures showed, while French growth ground to a halt last year.

The quarterly decline in Germany - the continent's largest economy - was primarily due to a drop in exports as demand weakened from other European nations, the Federal Statistical Office said.

Germany relies heavily on exports to other European countries. As economic troubles grew in recent years in Spain, Italy, France and Britain, demand for Germany's high-value industrial goods declined.

The fourth-quarter drop was larger than the 0.4% to 0.5% decline being predicted by most economists, and was the German economy's worst performance since early 2009 when the world was reeling from a banking crisis.

Overall the economy grew by a paltry 0.7% in 2012.

In France, GDP for 2012 contracted to a flat 0%, down from 1.7% in 2011.

Earlier this week independent auditors for the government called on France to get its finances in order, saying the country was spending too much money - much of it on wasteful programmes - and not taking in enough money in taxes.

Prime Minister Jean-Marc Ayrault acknowledged that France would miss ambitious budget targets intended to stabilise its economy and meet European requirements.

France is the world's 5th largest economy and the second-largest in Europe after Germany.

Despite the figures, there are hopes that Germany has started 2013 in better shape. The central bank, the Bundesbank, said last month that there were signs of improvement and growth in the first quarter would prevent the country from falling into recession.

ING economist Carsten Brzeski said the new figures were disappointing but there was "no reason to start singing the blues on the German economy". He noted improving confidence indicators, figures on factory orders and rising industrial production.

"With increased uncertainty stemming from the euro crisis and the global economic cooling in the second half of the year, the German economy has finally lost its invincibility," he said. "Looking ahead, however, there is increasing evidence that the economy should pick up speed again very quickly."

Even though German exports hit a record high last year, rising 3.4% overall, they shrank 0.3% to the 27-member European Union. They were down an even greater 2.1% to its 16 euro partners.

After a strong start to the year, exports only crept up 0.3% in December after two large declines in the previous three months.

Germany is the world's second largest exporter, having lost its crown as the world's biggest in 2009 to China.

The German government is predicting 0.4% growth overall for 2013, then an increase to 1.6% growth in 2014.

Separate figures today showed the recession across the economy of the 17 European Union countries that use the euro deepened in the last three months of 2012.

Eurostat, the EU's statistics office, said the eurozone economy shrank by 0.6% in the final quarter of 2012 from the previous three-month period. The decline was bigger than the 0.4% drop expected in markets.

That means the eurozone has contracted for three straight quarters as the big hitters added to the declines seen in the supposedly weaker economies such as Greece and Spain.

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