Euro-zone virus risks Germany's wellbeing

The giant of European industry is at risk of catching the debilitating economic virus that has left several peers in intensive care, new figures show.

German industrial production increased less than economists predicted in November as the euro-zone's recession left its mark on Europe's largest economy.

Production rose just 0.2 per cent from October, when it fell a revised 2 per cent, the economy ministry in Berlin said yesterday. Although that is the first increase in four months, economists had forecast a gain of 1 per cent, according to the median of 23 estimates in a Bloomberg News survey. From a year earlier, production fell 2.9 per cent when adjusted for working days.

The Bundesbank predicts the German economy will stagnate in the first quarter after a marked contraction at the end of last year.

As the euro-zone's growth engine and self-appointed fiscal paragon orders budget cuts for its peers, some observers warn Germany is turning a blind eye to its own weaknesses.

Joerg Asmussen, a European Central Bank board member nominated by the chancellor Mrs Merkel, said Germany's problems were exacerbated by its poor academic record.

There is not one German university in the world's top 50, according to the 2012 US News World's Best Universities ranking.

"Germany is seriously lagging behind in science and mathematics education," Mr Asmussen, a former state secretary in the finance ministry, said recently.

"That is, of course, a problem for a country that prides itself on manufacturing high-quality products."

Without reforms, "within five years Germany will again have the title 'Sick Man of Europe'," he said. Still, there are some signs the economy may not end up on the critical list just yet. Sentiment among German entrepreneurs and investors climbed more than analysts expected last month and economic confidence in the euro zone, the country's biggest export market, jumped to the highest level since July.

"The German economy probably experienced the worst growth performance in the fourth quarter since the first quarter of 2009," said Carsten Brzeski, senior economist at ING Group in Brussels.

"Looking ahead, however, strengthening external demand and sound domestic fundamentals should lead the way out of contractionary territory in the first half of this year."

Manufacturing output rose 0.4 per cent on the month in November, with investment-goods production up 1.4 per cent and basic-goods output up 0.2 per cent, yesterday's report showed. Production of consumer goods declined 2.2 per cent and energy output dropped 3.3 per cent. Construction gained 1 per cent from October.

In Germany, "industrial production has stabilised" after "the weak start into the final quarter of 2012", the economy ministry said. While fourth-quarter output will remain below third-quarter levels, "the development of orders and the slight improvement of sentiment indicators speak for a somewhat more favourable production outlook in the new year".

The euro zone succumbed to recession in the third quarter and the economy probably contracted another 0.3 per cent in the final three months of the year, according to the median of 22 forecasts in a Bloomberg News survey. Unemployment in the 17-nation currency bloc rose to a record 11.8 per cent in November, the European Union's statistics office said on Tuesday.

The Bundesbank cut its growth forecast for Germany this year to 0.4 per cent from 1.6 per cent last month. Exports and factory orders dropped more than forecast in November amid weak foreign demand, reports showed.

But there is "hope that the German economy will expand again at the start of 2013 after a sharp tumble in the fourth quarter of 2012", said Ulrike Rondorf, an economist at Commerzbank in Frankfurt.

"The order figures in past months and the business climate suggest that demand in the German industry is stabilising."

It seems the defibrillators can stay in the closet - for now.

* with Bloomberg News