German economy, Europe's largest, shrinks in Q4

BERLIN (AP) -- The German economy, Europe's largest, shrank by a mere 0.2 percent in the final three months of 2011 and grew by a solid 3 percent percent for the year as a whole, the Federal Statistical Office reported Wednesday.

The quarterly decline in Germany's gross domestic product was slightly than the 0.3 percent expected. Combined with an unexpected increase in the French economy, there are hopes that the 17-nation eurozone economy may not have contracted as much as the 0.4 percent anticipated — figures are due later.

Germany's statistics office also revised up third-quarter growth to 0.6 percent from 0.5 percent.

Carsten Brzeski, an economist with ING Global Research, said the fourth quarter slide was no cause for greater concern and the underlying factors supporting the German economy were still strong.

"The first economic contraction since the end of the recession turned out to be weaker than expected, confirming that the German economy only took a growth pause and is not approaching a new recession," he said. "The big unknown for the German economy remains the sovereign debt crisis."

The Economy Ministry in January cut the country's 2012 growth forecast from 1 percent to 0.7 percent — its second reduction in three months. As recently as October the prediction was 1.8 percent.

Still, Germany is expected to avoid a recession — defined as two consecutive quarters of negative growth — with 0.1 percent growth predicted for the first quarter of 2012.

Alexander Koch, an economist with UniCredit Research, said that he was sticking with a forecast of 0.2 percent growth for the first quarter of 2012, saying that the continuing recovery in the German labor market and recent indicators of consumer sentiment "bode well for a resumption of the upward trend."

"In our view the latest broad-based weakness in the official figures does not herald another negative quarter or even a deeper recession," he said.

Germany's 2011 growth of 3 percent followed a growth spurt of 3.7 percent in 2010 after a deep recession the previous year.

That contrasted with the performance of many of its partners in the eurozone, which have seen their economies barely grow or shrink amid debt troubles and tough austerity measures.