Declining GDP Moves Germany a Step Closer to Recession

New data released Wednesday show that Germany’s economy contracted for the second straight quarter, bordering on a recession, and the bad news could pressure politicians to resolve differences over a $32-billion austerity package.

German gross domestic product fell by half a percentage point in the first quarter of 1996, its worst performance in three years.

The economy’s basic weakness was worsened by a hard winter, which seriously hampered the construction industry, the Federal Statistics Office said.

The release of the statistics came the same day about 40,000 metalworkers held rallies in the states of Hesse and Baden-Wurttemberg to protest Chancellor Helmut Kohl’s proposal to make big cuts in social benefits, which is part of his austerity package.

About 10,000 workers from Mercedes-Benz and other firms rallied in Mannheim, and 8,000 Opel workers did the same in Ruesselsheim.

The sobering figures could give ammunition to Kohl, who says the budget cuts are needed to boost the economy and combat soaring unemployment, which hit postwar records this year.

In April, 3.97 million people were collecting jobless benefits, about 10.4% of the work force. Joblessness surpassed 4 million people earlier this year, the highest number since World War II.

According to the agency, especially hard-hit was former East Germany, where the gross domestic product contracted 2.5% in the first quarter from the three months previous. Nationwide, GDP fell by 0.5% in the first quarter, the second consecutive quarter of decline.

Two consecutive quarters of economic shrinkage qualify as a recession in the United States. But the German government, which uses some additional criteria to define a recession, insists the country is not in one.

Economics Minister Guenter Rexrodt said he still sees good chances for an impending economic turnaround.

“Even if most indicators reflect basic pessimism, the signs of an economic upswing aren’t bad,” he said. “We are pleased with sharply rising foreign orders in the manufacturing sector and a considerably improved business climate.”

Industrial output rose by 1.4% in April, its strongest performance in two years, preliminary data from the economics ministry show. But the ministry warned that as construction data is incomplete, it may revise the figure.

Kohl’s government recently announced huge spending cuts it plans to make in a bid to reduce the public budget deficit sufficiently to ensure Germany qualifies for the single European currency in 1997.