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Headline news: German Economy Grinding to Halt?

 In September Industrial production fell by 2.7% compared to the previous month. This was the biggest
drop since February 2009 and a much steeper drop than expected. Output fell by 0.4%, manufacturing
orders fell by 4.3% on a monthly basis in September. German business confidence fell to a 16 month low
according to the Ifo. German GDP growth was also expected to slow 0.8% in 2012 after a projected 2.9%
this year.
This has led analysts to speculate as to whether German economic growth is stagnating. However, the
ministry believes that these slumps have been exaggerated by the timing of summer holidays and that
looking at August and September combined, output in fact fell by just 0.2 percent compared with June
and July. In addition to this, compared with the previous year, production actually increased by 5.4% in
September (when adjusted for working days). This was 5.5% in unadjusted terms. In other words, the
German economy is simply slowing rather than stopping.

Key Data:

        GDP Per Capita (PPP)                                35374.00

        GDP Growth (QoQ)                                    0.10% (2nd Quarter 2011)
        GDP Growth (YoY)                                    2.70% (Q2 2011 compared with Q2 2010)

        Unemployment                                        7.0% (adjusted)
        Inflation                                           2.50%

        Interest Rate                                       1.25%
        Exchange Rate ($)                                   1.35

        10 Year Bond Yield                                  Record low of 1.72 (November 2011)
        Imports                                             77.6 Billion EUR (September 2011)

        Exports                                             95 Billion EUR (September 2011)
Contextual data (November releases):
- Business confidence hits 16 month low, dropped to 106.4 (from 107.4 in September)
- Manufacturing new orders down for the third month in a row (-4.3% MoM after -1.4% in August)
- Orders fell in all sectors apart from the consumer goods sector (+2.3% MoM after -5.5% in August)
- Germany services business activity index stands at 50.6, up from 49.7 in September.
- Germany Composite Output Index (Manufacturing and service sectors combined stands at 50.3, down
from 50.5 in September.

Stories behind the data:

       Industrial production drops: Exports rose by 0.9% in September. But industrial production
        dropped by 2.7% in September and new orders fell by 4.3%, the third monthly decline in a row.
        Unemployment barely rose during the 2008-09 recession. With the recovery, it has dropped to a
        20-year low. Gross wages are expected to rise by nearly 5% this year and by about 3% in 2012.
        Disposable income, adjusted for consumer inflation, should increase by about 1% next year.

       Growth forecasts cut: Last month forecasts for German economic growth in 2012 were cut by
        more than half, from 2% to 0.8%. Orders for German industrial goods from other Eurozone
        members fell 12.1% in September following a 1.4% drop in August. A retail sales report
        yesterday showed that September sales fell 0.7% in the 17 euro-sharing nations – far worse than
        the 0.1% economists had expected.

       Real GDP expected to grow: The council predicted that Germany's real gross domestic product
        will grow by 3.0% this year, after expanding by 3.7% in 2010. However, it is likely that growth
        will slow to just 0.9% next year (due to a drop in demand for Germany's exports). However, if
        the euro-zone debt crisis worsens, Germany's growth could fall to just 0.4% next year, and the
        country may even enter recession.

       German Unemployment Unexpectedly Rises: The number of unemployed persons increased by
        a seasonally adjusted 10,000 to 2.94 million. The adjusted jobless rate rose to 7 percent from
        6.9 percent.
   German companies stop hiring: German companies appear to be reluctant to continue hiring
    due to Europe’s worsening fiscal crisis. German investor sentiment also fell to the lowest in
    almost three years last month and business confidence dropped to a 16-month low.

   German stocks fall 1%: The benchmark German index fell more than 1%. Allianz fell 6.9%,
    Deutsche Bank dropped 4.9% and Commerzbank declined 4.5%.

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