OREANDA-NEWS. The German economy is likely to largely make up for the significant decline of 0.6% in GDP in the final quarter of 2012 already in the first three months of this year. In its current Economic Compass KfW forecasts a growth rate of a strong 0.4% for the current quarter. For 2013 as a whole, KfW is confident and confirms its forecast of an annual growth rate of 0.9% (in calendar-adjusted terms).

"The strong decline in the final quarter of 2012 was partly due to frontloading of auto production in the third quarter, as we now know, and thus remains a one time event. The German economy is making up for lost ground already in the first quarter of 2013," said Dr Jorg Zeuner, Chief Economist of KfW Bankengruppe. In the third quarter, automakers had worked in extra shifts to complete a backlog of orders. This front-loaded production in an important sector was then missing in the fourth quarter.

However, strongly declining exports were the essential, fundamental drivers of the downwards dynamic. This is easy to understand in light of the very poor growth results in the world's most important industrialised nations, which are also trade partners with Germany. The cumulative burdens from abroad will not last - there are already signs of a global turnaround," continued Zeuner. "We expect stable consumer demand, a return to rising exports and an increase of investments in the latter part of the year. In 2013 as a whole GDP will grow by 0.9% and thus again remain below potential growth. However, this rate masks the dynamic development in the course of the year that will radiate positively into 2014. In the coming year real growth is likely to nearly double to 1.7." This confidence is supported by the stable labour market combined with increases in real-term wages, the global recovery, economic policy and institutional decisions in the euro area, the clearly improved business expectations and new orders by industries that shape business cycles.

These factors also illustrate the most important risks: If the global recovery were to be unexpectedly interrupted or if the crisis in Europe were to escalate, a worse development is to be expected. "The final quarter of the last year proves how strongly dependent the German economy is on the developments in Europe and beyond. That attests to our competitiveness, but can also be a weakness," Zeuner commented. Therefore, Germany should continue to work on reducing its vulnerability in terms of foreign trade by strengthening its own domestic demand.