Frankfurt, Jan. 16 (Bloomberg) -- The German economy, Europe's biggest, grew at the slowest pace last year since the 1993 recession as companies slashed investments and rising unemployment deterred consumers from spending. The $2 trillion-economy expanded 0.2 percent in 2002 after 0.6 percent the year before, the Federal Statistics Office said. In the fourth quarter, the economy probably stagnated, it added. Companies from Volkswagen AG, Europe's biggest carmaker, to Siemens AG, Germany's largest electronics company, said sales fell in 2002. Retail sales dropped the most in three years in November and unemployment rose to a 4 1/2-year high in December. Exports kept the economy from shrinking. ``Growth this year will be driven by exports, not the domestic business,'' said Hans-Juergen Thaus, chief financial officer of machine maker Krones AG, which makes 80 percent of its sales abroad to customers such as Pfizer Inc. and L'Oreal SA. At home, ``investment is held back'' by weak demand.
Exports grew 2.9 percent last year, the figures released today showed. Consumer spending declined 0.5 percent and company investment in plants and machinery dropped 8.4 percent. The euro fell to $1.0559 at 9:31 a.m. Frankfurt time, from $1.0568 before the release of the figures. It has gained 5 percent in the past six months.
Lower Growth Forecasts
All the country's six leading economic institutes have pared their outlook for growth this year to about 1 percent or less, lower than the government's forecast of 1.5 percent. The U.K. government expects growth of as much as 3 percent and French officials see Europe's No. 3 economy expanding 2.5 percent. In Japan, the world's No. 2 economy, gross domestic product, the sum of all goods and services, expanded a bigger-than-expected 0.8 percent in the third quarter, compared with 0.3 percent for Germany. The U.S. economy, the world's largest, expanded at a 4 percent annual rate that quarter. Germany's struggling economy is weighing on Chancellor Gerhard Schroeder's efforts to pare unemployment and rein in the deficit. Still, Schroeder on Tuesday said he'll ensure the shortfall will drop below 3 percent of GDP this year, as required under European Union rules. The budget deficit swelled to 3.7 percent last year, the statistics office said, from 2.8 percent in 2001.
`Weak Growth At Best'
Economic growth was hampered by a drop in consumer confidence, which plunged to the lowest in eight years this month. Consumer spending accounts for almost 60 percent of the economy. Metro Group, Europe's biggest retailer, last week said fourth- quarter sales growth slowed. Legislators from Schroeder's ruling coalition said the government will lower its forecast in its annual economic report, due on Jan. 29. Investors say it's about time. ``Germany will have very weak growth at best this year,'' said Peter Lockhofen, who helps manage 3 billion euros ($3.18 billion) at DZ Capital Management GmbH in Frankfurt. ``What Germany lacks are investment incentives for consumers and companies.'' Exports are one of the few parts of the economy showing strength. Germany probably had its biggest trade surplus ever last year, the statistics office estimates. In November, factory orders, industrial production and exports all gained. Still, the euro's 9 percent gain against the U.S. dollar since mid-October is damping the outlook for exports, as a rising euro makes German goods shipped overseas more expensive.
Possible Rate Cut
The ECB has said it may lower interest rates should growth not accelerate this year as it expects. The bank last month trimmed its main refinancing rate by half a point to 2.75 percent, the first reduction in more than a year. The European Commission, the EU's executive body, said the euro economy may contract in the first quarter. Inflation in the region slowed to 2.2 percent in December from 2.3 percent in November. The ECB aims to keep the rate below 2 percent. In Germany, annual consumer price increases almost halved to 1.1 percent in December from the beginning last year. Investors are betting on more interest rate cuts, futures trading suggests. The rate on a three-month euro deposit maturing in June is at 2.55 percent. The yield on the current three-month money market rate is 2.83 percent. Bert Ruerup, a member of the German government's council of economic advisers, said in a televised interview that he hopes ``the ECB isn't done yet cutting interest rates.'' The ECB next meets to discuss monetary policy on Feb. 6. //www.quote.bloomberg.com