ANALYSIS: Germany economy perks up as global recession starts to fade

Berlin - The German economy appears to be slowly hauling itself out of its deepest downturn in more than 60 years as the global recession starts to fade. While the Group of Eight (G8) - representing the world's richest nations meet in the earthquake-hit Italian town of L'Aquila to take stock of the international slowdown, a slew of key German indicators have raised hopes about a fragile pickup in Europe's biggest economy could emerge as it enters 2010. 'All hard, real economic, data were up in May: retail sales, industrial production, new orders and now exports,' ING Bank economist Car sten Brzeski. 'But it is far too early to declare the return of Germany's growth engine but one thing is for sure: there is life in the old dog, yet,' he said. Indeed, on Thursday Germany's statistics office said exports edged up by 0.3 per cent in May after dropping a hefty 5.0-per-cent in April. Top German exporters have also been expressing cautious optimism about the run-up to the end of the year. 'These are first indications of a slight recovery on the automobile markets,' said BMW sales executive Ian Robertson following the release of the latest sales figures for the nation's leading luxury carmakers - BMW, Audi and Mercedes Benz. Many economists believe that as the world's leading export nation, Germany could enjoy a rather speedy recovery from recession on the back of a sustained upswing in global trade. The latest German trade data came in the wake of the figures published earlier this week showing production posting its biggest rise in 16 years and factory orders surging as the nation's hard economic data started to catch up with the cautious optimism of major forward-looking sentiment surveys. While Germany's closely watched business confidence survey rose for the third consecutive month in June to hit a seven-month high, investor confidence jumped to a three-year high last month. In the meantime, seasonally adjusted unemployment rose a less than forecast 31,000 in June, indicating that the nation's labour market managing to weather the recession better than expected. Analysts had forecast a 45,000 rise in the numbers out of work with state-subsidized short-term contracts helping to shield the German jobs market from the fallout from the recession. But underscoring the scale of the downturn that has engulfed the global economy over the last 8 months, the German economy remains in a brittle state. In its latest World Economic Outlook, the Washington-based International Monetary Fund revised up its forecasts saying global economic growth could hit 2.5 per cent in 2010, compared to 1.9 per cent projection it made in April. However, the IMF believes the global economy will slump by 1.4 per cent this year, which is tad worse than its April prediction of a 1.3-per-cent contraction. Moreover, despite the pickup in the data economic forecasters are expecting the German economy to contract by a dramatic 6 per cent plus this year with economic growth contracting again in the second quarter. The German chemicals industry association (VCI) said Wednesday chemical production in the country will fall by 10 per cent this year to post its biggest drop since the 1975 oil crisis. Analysts also believe layoffs could mount in Germany towards the end of the year as the global economic downturn catches up as a result with the nation's labour market casting a shadow over private consumption in the coming months. This is despite dwindling inflationary pressures, which left annual German inflation at 0.1 per cent in June. The Paris-based Organization for Economic Cooperation and Development has forecast that German unemployment will hit 11.6 per cent in 2010. In seasonally adjusted terms, the German unemployment rate edged up to 8.3 per cent in June from 8.2 per cent in May. German corporate insolvencies have surged this year with more than 10,000 companies filing for insolvency between January and April this year. This represented a rise of 12.1 percent on the same period last year, the statistics office said Wednesday. The May increase in exports was also less than the 1.5-per-cent rise forecasts by economists and imports slumped by 2.1 per cent after tumbling 6-per-cent in April. Economists had forecast a 0.8- per-cent increase in May imports. What is more, exports were down 24.5 per cent in May compared to the same month in 2008. Imports were 22.6 per cent lower in May than in the same month last year.