By: Dr. Mike Campbell

Preliminary Data Shows that the German economy contacted by 0.25% in the fourth quarter of 2011. The definitive data set will be released in mid February. However, thinks are not quite as gloomy as the headline might suggest.

In common with all major economies, domestic demand is the engine which fuels growth. German domestic demand was particularly strong in the first two quarters of the year. The upshot of the strong early demand is that Germany is likely to post respectable whole year growth figures of 3%. Whilst this falls short of the 2010 figure of 3.7% which represented a post-reunification record, the figure is very pleasing when seen against the backdrop of the Eurozone crisis and insipid global demand.

Germany’s economic performance is all the more striking when compared against its major competitors. According to the Organisation for Economic Cooperation and Development (OECD), the USA is expected to grow by 1.7% for 2011; France by 1.6%; the UK by 0.9% and Spain and Italy are expected to manage 0.7%.

According to Roderich Egler, head of the German statistics office, private consumption grew by 1.5% in 2011 which compares favourably to the 0.6% seen in 2010. Demand for motor vehicles grew by 6% in December. Export demand rose by 8.2%, but this was just a fraction of the 13.7% hike seen in 2010.

Of course, Germany cannot isolate itself from the Eurozone crisis, but the silver lining for Germany is likely to be stronger exports on the back of a weaker Euro whilst nervousness and the sovereign debt crisis continue to prey on investor’s minds.