On Germany’s avoiding recession

While Germany’s numbers for Q4 2012 were poor, showing a contraction of 0.5%, I noted in my last post on Germany that this does not mean recession.  The contraction was due to export and capital investment figures, which look to rebound in Q1.

Today’s German ZEW sentiment survey was much stronger than expected.  The survey jumped up to 31.5 from 6.9, while consensus estimates were only 12.0.  This figure puts  business sentiment at a 2 1/2 year high according to Brown Brothers Harriman.  BBH also notes that “it lends credence to the Bundesbank’s optimism” that Germany is already recovering from the Q4 contraction. We should be looking for the PMI readings as confirmation that the sentiment index uptick has registered in terms of production. And I would also expect it to have a positive impact on capital investment, which was a major contributor to poor GDP figures in 2012.

I still expect 2013 to be a relatively weak year in line with 2012 because of muted domestic consumption growth and the recession elsewhere in the euro zone to where Germany sends 40% of its trade. Expect a below 1.0% GDP growth reading unless wage growth is unusually strong, buoying domestic demand