German Export Plunge Sparked Record Economic Slump

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German exports and company spending plunged in the first quarter, dragging Europe’s largest economy into its deepest slump on record.

Exports dropped 9.7 percent from the fourth quarter and company investment declined 7.9 percent, the Federal Statistics Office in Wiesbaden said today. Gross domestic product fell a seasonally adjusted 3.8 percent from the previous three months, the office said, confirming an initial estimate from May 15. That’s the steepest drop since quarterly data were first compiled in 1970.

The worst global recession since World War II has exposed Germany’s reliance on exports as an Achilles Heel, forcing companies to slash output and cut jobs. Chancellor Angela Merkel’s government will spend about 82 billion euros ($115 billion) to fight the crisis, and the European Central Bank has cut borrowing costs to a record low. German business confidence rose for a second month in May and investors also grew more optimistic, suggesting the economic slump is bottoming out.

“Recent indicators give hope that the worst is behind us,” said Carsten Brzeski, an economist at ING Groep NV in Brussels. “The German economy should stabilize in the coming quarters, backed by the ECB’s aggressive monetary easing and the government’s stimulus package. A recovery in the truest sense of the word will only materialize in 2010.”

The government expects the economy to contract 6 percent this year.

‘A Winner’

Consumer spending rose 0.5 percent in the first quarter from the fourth, even as households’ disposable incomes declined 0.9 percent, the statistics office said.

Still, company investment in machinery and equipment slumped 16.2 percent and construction spending declined 2.6 percent, today’s report showed. Imports fell 5.4 percent in the three months through March, almost half the slump in exports, so that net trade reduced GDP by 2.2 percentage points.

Bayerische Motoren Werke AG, the world’s largest maker of luxury cars based in Munich, said on May 14 that 2009 will be a “challenging” year. Schaeffler Group, the ball-bearing maker that owns Continental AG, said earlier this month it plans to cut labor costs by 250 million euros on declining orders.