French And German Economies Contract

By their very nature, quarterly growth figures are a backwards-looking index as to how an economy is faring since they can only be determined on historic data. They tell you how an economy was performing rather than how it can be expected to perform going forward, but GDP provides a solid, evidence based picture of the recent past. Consequently, the fact that the two largest Eurozone economies, Germany and France, contracted in Q4 2012 may fly in the face of current, forward looking indicators which suggest that better times lie ahead.

The German economy contracted by 0.6% in Q4 2012 whereas France saw its economy shrink by 0.3%; both levels of performance were worse than analysts had been predicting. Taken as a whole, the Eurozone economy is expected to have contracted by 0.4% over the quarter which, if confirmed, will be the third consecutive quarter of contraction, leaving the bloc in recession.

The German contraction has been blamed on a decline in exports in Q4; the contraction was the worst experienced by the German economy since the depths of the global financial crisis in Q1 2009. The German statistical agency, Destatis, commented that: "Comparatively weak foreign trade was the decisive factor for the decline in the economic performance at the end of the year: in the final quarter of 2012 exports of goods declined significantly more than imports of goods."

For its part, the French central bank is predicting that the economy will return to growth this quarter and so will avoid recession. The French government is seeking to bring about recovery by freezing government spending and raising more tax from corporations and wealthier citizens, rather than by adopting the more extreme austerity cuts seen in many EU nations.