Germany's economy probably contracted by around 0.25% in the fourth quarter of last year, the government's statistics office said Wednesday, increasing the risk the 17-nation euro zone could be heading for a contraction only two years after the last recession.
The news from the currency bloc's largest economy came alongside other indicators that sluggish world demand and fiscal austerity at home were dragging on demand from households and businesses.
New data from Spain on Wednesday showed Spanish industrial output plunging 7% in November from a year ago, accelerating from 4.2% contraction in October and also putting the Spanish economy on course for a contraction in the last quarter of 2011.
Germany's weak close for 2011 overshadowed news of a 3.0% expansion for the year as a whole, following a 3.7% growth rate in 2010 and a 5.1% contraction in 2009.
The data bear out the warnings of Mario Draghi, the head of the European Central Bank, that the euro zone could be heading into a mild recession. The Deutsche Bundesbank, Germany's central bank, has forecast German economic growth to slow to 0.6% this year, assuming that there isn't any further escalation of the sovereign debt crisis.
The warning touched on a major impediment for euro-zone confidence and economic growth. The lingering debt crises in Greece, Portugal and Ireland still threaten to spill over into Italy or Spain. Government efforts to pull in deficits have in some cases been shown to be counterproductive, with cutbacks adversely affecting demand and tax intake.
The government debt crisis, meanwhile, has spilled over into the banking sector, where cautious lenders are hoarding cash rather than lending it out, which would enhance spending by consumers and businesses. Banks are reluctant to lend to one another because of concern about their exposure to risky sovereign debt.
Underscoring that trend, the ECB Wednesday said use of its low-yielding but relatively safe overnight deposit facility hit a new record. Euro-zone banks parked €485.898 billion in the deposit facility Tuesday, up from €481.935 billion Monday.
The fourth-quarter estimate of German gross domestic product was calculated on the basis of the statistics office's full year GDP estimate. The agency will publish preliminary fourth-quarter 2011 GDP on Feb. 15.
For 2011 as a whole, German private consumption grew by 1.5%, up from growth of 0.6% in 2010. Private consumption contributed 0.9 percentage points to growth in German GDP growth last year, after contributing 0.4 percentage points in 2010, in a sign that domestic demand is playing a stronger role in the country's historically export-driven economy.
Exports grew by 8.2% in 2011, slowing from growth of 13.7% in 2010. Germany's public-sector budget deficit narrowed in 2011 to 1.0% of GDP, compared with 4.3% in 2010. The deficit is now within the European Union limit of 3% of GDP.
"Germany's 3% growth for the year was respectable but the fourth quarter saw a marked slowdown, which hints at a possible shallow recession later this year," said David Miller, a partner at Ceviot Asset Management.
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