Jan. 15 (Bloomberg) -- The German economy, Europe's largest, shrank 0.1 percent last year, said a person who has seen figures from the Federal Statistics Office. An annual contraction would be the first since 1993. Such a drop in gross domestic product -- the value of all goods and services -- would match the median forecast of 32 economists in a Bloomberg News survey. The statistics office will release its estimate tomorrow at 9 a.m. in Wiesbaden. Germany's economy has struggled to grow in the past three years as a global slowdown hurt exports, hobbled investment and pushed unemployment to the highest in more than four years. Sales abroad led Europe's largest economy back to growth in the three months through June after a first-half recession.
``We had a good fourth quarter, but a further acceleration from here will be difficult,'' said Joerg Kraemer, chief economist of Invesco Asset Management in Frankfurt, who expects the economy to expand 1.5 percent this year. ``We can't forget the huge euro appreciation we've had, which will have a damping effect.'' The 21 percent appreciation of the euro in the past year is making exports more expensive. The currency reached $1.2899 on Tuesday, the highest since the currency's introduction in 1999. That's prompted policy makers and politicians including ECB President Jean-Claude Trichet and German Economics Minister Wolfgang Clement to express concern about the euro's gains. Trichet on Monday said the ECB doesn't welcome ``brutal moves'' in the currency and Clement last week called on the ECB to cut interest rates to stem the currency's advance.
European Recovery
Faster growth in the U.S. and Asia is still spurring demand at companies including Deutsche Lufthansa AG, Europe's third- biggest airline, and Continental AG, the world's fourth-largest tiremaker. Continental said profit last year beat the company's forecasts as it benefited from rising U.S. sales and Deutsche Lufthansa said December passenger traffic rose for a fourth month. ``The whole of Europe is waiting for Germany to return to growth, but all of Europe knows that we will only have growth when exports are humming,'' Clement said. Economists expect the euro-region economy to grow 0.5 percent in the first quarter compared with the previous three months, the median of 24 forecasts in a Bloomberg News survey showed. The European Commission will give its growth prediction for the period at noon in Brussels.
Budget Deficit
Germany's $2.5 trillion economy expanded 0.2 percent in 2002 and 0.8 percent in 2001. As a result, Germany violated European Union limits on budget deficits for the past two years. The budget deficit was probably equivalent to 4.1 percent of GDP last year, the statistics office will also say today, according to the median forecast of 24 economists in a Bloomberg survey. Chancellor Gerhard Schroeder is seeking to boost employment and revive Germany's allure as an investment location by introducing tax cuts and laws that ease dismissals and tighten jobless benefit entitlement. Schroeder brought forward about 8.9 billion euros ($11 billion) worth of tax cuts at the start of this year. The cuts risk the country's third breach of the EU's 3 percent limit on deficits this year. So far, evidence that consumers are set to step up spending is patchy. Retail sales probably dropped as much as 4 percent during the Christmas period, the HDE retail association said last month, and GfK AG's index of consumer confidence stagnated. On the other hand, German new car sales rose 1 percent last month, according to the VDA automakers' association. //www.bloomberg.com