Germany's economy shrank in Q4

BERLIN (AP) -- Germany's economy grew by a modest 0.7 percent in 2012 — but shrank in the fourth quarter, government figures showed Tuesday.

For 2012, the country's economy still grew faster than the rest of the 17 European Union countries that uses the euro, which has been hit by a debt crisis. But the numbers were down on the previous year, when the Germany's economy grew 3 percent.

No fourth-quarter figure was given for gross domestic product, but the full-year total underscored what economists have been suspecting for some time — that the country turned in negative growth in the fourth quarter. Growth was 0.8 percent in the first quarter, 0.3 percent in the second and 0.2 percent in the third.

Analyst Carsten Brzeski at ING said the numbers showed that the German economy shrank around 0.3-0.4 percent in the fourth quarter. The government said that shrinkage could have been around 0.5 percent, once calendar effects for different numbers of working days were eliminated.

Exports to the United States and China have helped keep Germany going even as demand sags in crisis hit-countries such as Spain, Portugal and Greece. German growth had helped keep the eurozone as a whole from falling even deeper into recession.

Analyst Rainer Sartoris at HSBC said that domestic demand remained a drag on the economy because businesses were not investing in new plants, buildings and equipment even as consumers were willing to spend money. Wages grew 3.6 percent last year, the third strong increase in a row.

The recent easing of financial market turmoil from the eurozone crisis over too much government debt in some countries could help motivate businesses to spend more in investment.

"After growing relatively healthy at the start of 2012 the economy has entered into a weak spot at the end of the year," he said. "We expect the weakness to be relatively short lived with respect to latest indications of a pick up of global economic activity."

A second quarter of shrinking output would put Germany in an official recession, but the country's Bundesbank central bank has said it does not expect that to happen even though growth for all of next year should come in at an anemic 0.4 percent.

The European Central Bank says it expects the eurozone to shrink by 0.3 percent next year.

Germany also said it had reached a balanced budget under the official EU debt criteria, turning in a small surplus for 2012 of 0.1 percent of annual economic output.

Due to a methodological quirk, German state statistics agency releases annual growth figure before it issues fourth-quarter numbers. The official fourth quarter number will be announced next month.