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German economy shrank 5pc in 2009

Germany’s economy shrank more than economists forecast last year even as government stimulus measures and a rebound in exports pulled it out of a recession in the second quarter.

Gross domestic product fell 5pc in 2009, after expanding 1.3pc in 2008, the Federal Statistics Office said in Frankfurt today.

Economists had forecast a GDP decline of 4.8pc, according to the median of 18 estimates in a Bloomberg News survey. Germany had a budget deficit of 3.2pc of GDP last year.

After shrinking for four straight quarters, the economy resumed expansion in the three months through June. Chancellor Angela Merkel’s government is spending €85bn to boost growth. The Bundesbank said last month that the outlook has “brightened perceptibly.”

“The economy has shaken off its recession faster than expected,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “The recovery will remain bumpy this year, but after the shock at the beginning of last year it could have been much worse.”

Economic growth accelerated to 0.7pc in the third quarter from 0.4pc in the prior three months. Exports rose more than economists forecast in November and business confidence increased to the highest in 17 months in December.

Rising confidence

The Bundesbank expects the economy to grow 1.6pc this year and 1.2pc in 2011, driven by “extensive” monetary and fiscal stimulus.

Even as the economic outlook improves, European Central Bank President Jean-Claude Trichet has signaled that policy makers have no immediate plan to raise the benchmark interest rate from the current record low of 1pc.

ECB council member Ewald Nowotny said last month that there is no “strong need” to shift policy in the absence of inflation pressures.

Market turmoil stemming from concerns over mounting fiscal problems in some euro-area nations and the end of some government stimulus measures are casting doubt on the pace of the recovery. German investor confidence declined for a third month in December and retail sales unexpectedly fell in November.

“Even though the economic outlook isn’t that good, one shouldn’t completely ignore the silver linings,” said Joerg Lueschow, an economist at WestLB in Dusseldorf. “One year ago, most economists didn’t expect even weak growth this year.”