The German economy shrank by a larger-than-expected 0.6 percent in the final quarter in 2012, official figures showed Thursday, in a clear sign that the European financial crisis took its toll on the continent's largest economy.
The quarterly decline was primarily due to a drop in exports as demand weakened from other European nations, many of which are in recession, the Federal Statistical Office said.
Germany relies heavily on exports to other European countries. As economic troubles grew in recent years in Spain, Italy and even France and Britain, demand for Germany's high-value industrial goods declined.
The fourth quarter drop was larger than the 0.4 to 0.5 percent decline being predicted by most economists, and was the German economy's worst performance since early 2009 when the world was reeling from a banking crisis. Overall the economy grew by a paltry 0.7 percent in 2012.
There are hopes that Germany has started 2013 in better shape. Germany's central bank, the Bundesbank, said last month that there were signs of improvement and that growth in the first quarter would prevent the country from falling into recession — officially defined as two consecutive quarters of negative growth.
ING economist Carsten Brzeski said Thursday's figures were disappointing but that there was "no reason to start singing the blues on the German economy." He noted improving confidence indicators, figures on factory orders and rising industrial production.
"With increased uncertainty stemming from the euro crisis and the global economic cooling in the second half of the year, the German economy has finally lost its invincibility," he said. "Looking ahead, however, there is increasing evidence that the economy should pick up speed again very quickly."
Even though German exports hit a record high last year, rising 3.4 percent overall, they shrank 0.3 percent to the 27-member European Union. They were down an even greater 2.1 percent to its 16 euro partners.
After a strong start to the year, exports only crept up 0.3 percent in December after two large declines in the previous three months.
Germany is the world's second largest exporter, having lost its crown as the world's biggest in 2009 to China.
The German government is predicting 0.4 percent growth overall for 2013, then an increase to 1.6 percent growth in 2014.