RTTNews - Germany confirmed the record contraction in first quarter GDP on easing global demand.

In a detailed report, the Federal Statistical Office said the largest Eurozone economy contracted 3.8% on a sequential basis in the first quarter, which was the fourth straight quarter of decline and the biggest fall since records began in 1970. In the fourth quarter of 2008, the gross domestic product had slipped 2.2%.

The record decline in economic performance was mainly due to the development of the balance between exports and imports of goods and services. Exports were down 9.7%, much bigger than a 5.4% fall in imports. Consequently, the balance of exports and imports contributed minus 2.2 percentage points to the decline of GDP.

Further, investment also acted as a drag, with capital formation in machinery and equipment, in particular, declining significantly from the last quarter of 2008. At the same time, investment in construction slipped only 2.6%.

Commenting on GDP data, Ralph Solveen an economist at Commerzbank said he expects investment in machinery and equipment to continue its downward trend over the remaining part of this year. Further, he assessed that the stimulus initiated from monetary policy would be felt at the turn of the year.

Inventories reduced GDP growth by 0.5 percentage points in the first quarter. The growth was stimulated only by the increases in household and government final spending. Household consumption was up 0.5% and government spending rose 0.3%.

Compared with the first quarter of 2008, GDP decreased a price-adjusted 6.7% in the first quarter of 2009, much larger than the 1.7% drop seen in the fourth quarter. When calendar-adjusted, the economic performance went down 6.9%.

The statistical office, thus confirmed the initial estimates for the first quarter released on May 15.

The economic performance was achieved by around 39.9 million persons in employment in the first quarter, up 48,000 persons or 0.1% on a year earlier. The number of unemployed persons amounted to just below 3.4 million, accounting for 7.8% of the entire economically active population.

Solveen added that hopes of stabilization in the coming quarter are based on the assumption that large scale of stock depletion would end soon and that the decline in world trade is almost over. Initial signs are pointing to the happening of this trend in the economies. The German economy would contract in the second quarter, but at a less severe pace than in the first quarter. Then there is a possibility of stabilization in the second half of the year.

Elsewhere, a consumer climate survey by market research firm GfK Group revealed that German consumer sentiment remained unchanged in May amid the economic crisis. The survey's forward-looking overall indicator showed a value of 2.5 points for June, matching May's reading.

Economic expectations improved slightly for the second month in a row. The corresponding indicator showed a reading of minus 28.3 points in May, up 2.9 points from previous month.

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