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Germany hit by economic slowdown Germany hit by economic slowdown
(about 1 hour later)
Germany's economy shrank by 2.1% in the fourth quarter of 2008 compared to the previous quarter, its worst quarterly performance since 1990. Germany's economy shrank by 2.1% in the fourth quarter of 2008 compared with the previous quarter, its worst quarterly performance since 1990.
This was the third consecutive quarterly drop in Europe's biggest economy, according to the initial data from the Federal Statistics Office. Other countries in the eurozone, the 16 countries which use the euro, have also seen their economies contract.
Year-on-year, it shrank by 1.6%, after growing by 1.4% in the third quarter. The French economy shrank by 1.2% in the same quarter, initial data shows.
Companies have cut investment and exports have dropped as the world economy slows down. Companies have cut investment and exports have dropped, increasing pressure on the European Central Bank to cut rates.
The figures were worse than the 1.8% anticipated by analysts and many are gloomy about the prospects for 2009. European companies hit by the slowdown include Air-France KLM, which reported a third-quarter operating loss on Friday, and Michelin, whose final-year profits fell as the crisis in the global car industry took its toll on the tyre maker.
"This shows things went downhill sharply at the end of the year," said Juergen Michels, an economist at Citigroup. German gloom
"We'll likely head down again the first and second quarter." The slowdown was the most dramatic in Germany, which registered the biggest fall since German reunification in 1990.
The 2.1% contraction was the third consecutive quarterly drop in Europe's biggest economy, according to the initial data from the Federal Statistics Office, worse than the 1.8% anticipated by analysts.
Year-on-year, the German economy shrank by 1.6%, after growing by 1.4% in the third quarter.
Many are now gloomy about the prospects for 2009.
The first quarter will be difficult. We will have a difficult year Christine Lagarde, French economy minister Sarkozy defends economy plan
"This shows things went downhill sharply at the end of the year," said Juergen Michels, an economist at Citigroup. "We'll likely head down again the first and second quarter."
"This number makes it plain that we're in a very serious recession - the most serious since World War Two. It's no surprise that exports and investment have tumbled," said Dirk Schumacher at Goldman Sachs, adding that the rise in inventories did not bode well for the first quarter."This number makes it plain that we're in a very serious recession - the most serious since World War Two. It's no surprise that exports and investment have tumbled," said Dirk Schumacher at Goldman Sachs, adding that the rise in inventories did not bode well for the first quarter.
The situation "can hardly get worse," said Carsten Brzeski at ING Financial Markets.The situation "can hardly get worse," said Carsten Brzeski at ING Financial Markets.
"The German industrial production has run out of steam with companies working only off their backlogs. Foreign demand has plummeted over the last months," he added."The German industrial production has run out of steam with companies working only off their backlogs. Foreign demand has plummeted over the last months," he added.
Last month, the German government forecast that the economy would shrink by 2.25% this year.
France slowdown
The slowdown in the French economy was slightly worse than analyst expectations of a 1.1% drop.
The French economy expanded slightly in the third quarter, by 0.1%, which means that France is not in recession - the technical definition of a recession is two consecutive quarters of contraction.
With consumer spending up by 0.5%, some analysts found cause for hope.
"Consumer spending has held up quite well so you can say there is still money out there to be spent and French households are spending it," Alexander Law, chief economist at Xerfi said.
Companies also destocked their inventories in the fourth quarter, shaving 0.9% off GDP, a fact that could bode well for industrial production in the first quarter. With warehouses emptier, companies may increase production.
Many say that tough times lie ahead. "The first quarter will be difficult," Christine Lagarde, the economy minister, said. "We will have a difficult year. "
The data increases pressure on the European Central Bank to cut rates. It cut the benchmark rate to 2 per cent in January, the lowest in the bank's 10-year history and kept the rate unchanged in February. Its next decision is due on 5 March.