German central bank says country's economy will grow in first quarter

FRANKFURT – German’s central bank says the country’s economy is on track to avoid a recession as it shows signs of growth in the first three months of the year.

Europe’s largest economy shrank 0.6 per cent in the last quarter of 2012. Two straight quarters of falling output is a common definition of recession.

The Bundesbank says in its monthly report out Monday that increasing business optimism and easing fears about the government debt crisis among the 17 European Union euro countries mean business may become more willing to invest and expand. That means that “a plus in total economic production can be expected for the first quarter of 2013.”

A growing German economy could help speed the eurozone’s recovery, which is mired in recession. Governments are cutting spending and raising taxes to reduce heavy levels of debt, slowing their economies. Greece, Portugal and Ireland have needed bailout loans from the other eurozone members, while Spain and Italy are in recessions with high unemployment.

The European Central Bank says the eurozone will shrink 0.3 per cent in 2013 and only start to recover later in the year. Growth is key for solving the debt crisis, since it shrinks the size of country’s debts relative to their economy and increases revenue from income and business taxes.

German growth helps the other countries in the eurozone because German consumers purchase imports from them, and because German companies use firms in neighbouring countries as suppliers.