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German Economy Skirts Recession As Estimated

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The German economy avoided a technical recession in the third quarter, as initially estimated, driven by spending and construction investment, latest data from Destatis showed Friday.

Separately, a closely watched survey revealed a moderate contraction in the German private sector as the drag from manufacturing eased in November.

Gross domestic product grew 0.1 percent sequentially, following second quarter's 0.2 percent contraction. The rate came in line with the initial estimate published on November 14.

Another contraction in the third quarter would have seen the biggest euro area economy slipping into a technical recession that is defined as two consecutive quarters of GDP decline.

On a yearly basis, the unadjusted GDP advanced 1 percent in the third quarter, offsetting the 0.1 percent decline in the preceding period.

Calendar-adjusted GDP growth accelerated to 0.5 percent from 0.3 percent in the second quarter. This was the fastest growth in a year. Both annual growth figures matched the provisional estimate.

The expenditure-side breakdown showed that household final consumption expenditure gained 0.4 percent and government final consumption expenditure climbed 0.8 percent from the prior quarter.

Overall gross fixed capital formation was down 0.1 percent. Fixed capital formation in construction was markedly up by 1.2 percent on the previous quarter, while investment in machinery and equipment was down 2.6 percent.

Development of foreign trade made a positive contribution to economic growth. Exports grew 1 percent, while imports rose only 0.1 percent.

Counting on only consumption and construction to offset the industrial downturn and on a possible rebound in global trade to cover the structural changes and disruption facing several key sectors of the entire economy might be a risky gamble, Carsten Brzeski, an ING economist said.

The economy will continue to flirt with stagnation or even recession, Brzeski noted.

Although Germany's private sector continued to shrink in November the pace of fall moderated from October, according to flash survey results from IHS Markit.

The composite output index rose to 49.2 in November from 48.9 in the previous month. A score below 50 indicates contraction and the reading was slightly below forecast of 49.3.

The factory Purchasing Managers' Index rose to a five-month high of 43.8 from 42.1 in October. The rate of decline in factory output slowed for the second month.

Meanwhile, growth of services business activity remained subdued. Services output grew at the weakest pace since September 2016.

The services PMI fell to a 38-month low of 51.3 from 51.6 in the previous month. The expected score was 52.0.

Beneath the subdued headline numbers the data show another slight convergence between the more domestically-focused service sector and export-led manufacturing, Phil Smith, principal economist at IHS Markit, said.

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