Economic Reports Surprise in Britain and Germany

While official data showed the British economy shrank more than expected in the fourth quarter, raising concern about another recession, a closely followed business confidence index in Germany beat economists’ forecasts for January, a sign that Europe’s largest economy is improving.

“It fits into a pattern we’ve seen for a while that Germany has tended to outperform other countries,” Eckart Tuchtfeld, an economist at Commerzbank, said. “This is not a one-off. The economic situation in Germany has improved” since the last quarter of 2011.

The Ifo institute’s business climate index rose more than some economists predicted in January for a third month in a row, with manufacturing and service industries, especially, performing better than expected. Sales at carmakers such as Daimler and Bayerische Motoren Werke jumped last year. SAP, the business management software maker, on Wednesday forecast higher earnings for this year.

In Britain, the economy is struggling to avoid falling back into a recession. Gross domestic product fell 0.2 percent in the fourth quarter of last year from the third quarter, more than the 0.1 percent some economists forecast, the government said Wednesday. Manufacturing shrank 0.9 percent; London has been trying to stimulate the sector in an effort to make Britain’s economy less dependent on services.

Prime Minister David Cameron called the figures “disappointing,” adding that “these are extremely difficult economic times.” He blamed the drop in G.D.P. on an “overhang of debt,” higher fuel prices and “Europe’s economies.”

The leader of the opposition Labour Party, Ed Miliband, said Mr. Cameron should stop blaming the euro zone’s economic crisis for Britain’s difficulties and start to admit that the government’s austerity measures cripple growth. “People are fed up with his excuses,” Mr. Miliband said.

The chancellor of the Exchequer, George Osborne, acknowledged that Britain had “substantial economic problems,” but that “dealing with those problems is made more difficult by the situation in the euro zone.” The government said it would stick to its plan to cut the budget deficit, which would eliminate about 700,000 public sector jobs, asserting that the plan helped to provide Britain with lower borrowing costs than countries such as Italy or Spain.

The International Monetary Fund on Tuesday cut its growth forecast for Britain for this year to 0.6 percent from 1.6 percent and predicted a mild recession in the 17 E.U. countries that share the euro as a single currency. Britain is a member of the European Union but not of the euro zone.

“The heightened uncertainty has damaged confidence, causing businesses and consumers to put their spending decisions on hold, paralyzing the U.K. economy,” Andrew Goodwin, senior economic adviser to Ernst Young’s economic analysis group, said. “There is a danger that this situation will persist, in the absence of a credible and sustainable solution to the euro zone’s woes.”

Britain’s dismal economic data Wednesday means the Bank of England is now more likely to expand its bond purchasing program, or so-called quantitative easing, when its interest rate setting committee meets next month. The benchmark interest rate is at a record low of 0.5 percent and the central bank is close to completing its £275 billion, or $428 billion, bond buying program meant to alleviate pressures in the credit markets.

“There is scope for interest rates to remain low, and, if necessary, for further asset purchases, to prevent inflation falling below the 2 percent target,” Mervyn A. King, the governor of the Bank of England, said in a speech Tuesday evening.

“As we head into a challenging year for the world economy, we have seen more positive sentiment in financial markets, and, at home, a fall in inflation,” Mr. King said. “But none of this implies that 2012 will be an easy year.”

Article source: http://www.nytimes.com/2012/01/26/business/global/economic-reports-surprise-in-britain-and-germany.html?partner=rss&emc=rss