Germany to Escape Recession and Return to Growth

Germany, Europe's biggest economy, will avoid the recession that has engulfed many of its partners in the region and return to growth in the first quarter of 2013, the Bundesbank said on Monday.

"As it currently looks, a plus in economic output can be expected in the first quarter of this year," the German central bank said in its February monthly report.

German gross domestic product (GDP) shrank by 0.6 percent in the last quarter of 2012, as weak demand in other eurozone countries hurt exports.

Were its economy to decline again in the current quarter, Germany would technically be in recession, defined as two quarters running of economic contraction.

But the Bundesbank joins other economic experts and observers who believe last year's dip in growth will prove short-lived.

"For the rest of this year, the economy is expected to pick up gradually, even if the external economic environment will provide no trigger for a sharp surge in demand," it wrote.

Although Germany has fared much better than its eurozone partners in the long-running debt crisis, it has not been able to escape completely unscathed and growth slowed throughout 2012.

German GDP grew by 0.5 percent in the first quarter of 2012 and then by 0.3 percent in the second quarter and 0.2 percent in the third quarter.

With the contraction of 0.6 percent in the fourth quarter, the economy expanded by just 0.7 percent across the whole of 2012, compared with 3.0 percent in 2011, according to the latest data compiled by federal statistics office Destatis.

At the same time, the 17-nation eurozone slid deeper into recession in the fourth quarter of 2012, when the region's economy shrank by 0.6 percent after already contracting by 0.1 percent in the preceding quarter.

But in Germany, at least, experts believe the economy is already back on the growth path.

Economy Minister Philipp Roesler said last week he believed that the current weakness would be "only temporary."

The minister forecast: "During the course of the year, the German economy will find its way back to growth. Current indicators, such as business surveys, confirm this."

The government is penciling in growth of 0.4 percent for 2013.

But German industry is more optimistic and the DIHK federation of chambers of commerce recently projected growth of 0.7 percent given brighter export prospects and a stabilization in corporate investment and hiring.

Turning to Germany's public finances, the Bundesbank said it is forecasting a slight deficit of around 0.5 percent of GDP this year, compared with a fractional surplus of 0.1 percent in 2012.

Under eurozone rules, member states are not allowed to run up deficits in excess of 3.0 percent of GDP.