The strong average annual growth seen in 2011 should not, however, conceal the fact that the German economy contracted in the final quarter of the year. As a result, the starting point for a further year of strong economic growth in 2012 is not propitious. We estimate that real gross domestic product in the first quarter of this year will be only just below 1% up on a year earlier.
However, we do not share fears that Germany is heading for a recession. Business surveys are signaling that the downturn in sentiment seen since mid-2011 did not continue at the end of the year. The German labor market is showing no signs of weakness. Indeed, leading indicators for the labor market, such as the Federal Labor Agency’s vacancies index, have risen again in recent months. On the income side, with inflation rates heading down, we can expect to see at least moderate purchasing power gains. All told, we are still expecting economic growth of 1.0% in 2012. We see upside and downside risks to our forecast equally distributed.