Denting further Eurozone's recovery hopes, the German and French economies shrank more than expected in the final three months of 2012 amid falling exports and investment, preliminary data revealed Thursday.

Germany's gross domestic product fell 0.6 percent quarter-on-quarter on a seasonally and calendar- adjusted basis in the fourth quarter, the Federal Statistical Office or Destatis said. This was worse than the 0.5 percent contraction expected by economists and followed a 0.2 percent expansion in the third quarter.

Preliminary figures from France's statistical office Insee showed that the French economy also shrank more than forecast, led by a marked decline in investment and inventory changes.

France's gross domestic product fell 0.3 percent quarter-on-quarter in the fourth quarter after a 0.1 percent expansion in the third quarter. Economists had forecast a 0.2 percent decline. The Bank of France had predicted 0.1 percent growth for the last quarter.

Destatis said Germany's calendar-adjusted GDP rose 0.4 percent year-on-year in the fourth quarter compared to expectations for 0.5 percent growth. In the third quarter, GDP had risen 0.9 percent year-on-year. On an unadjusted basis, GDP grew 0.1 percent year-on-year in the fourth quarter.

"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," said Carsten Brzeski, an economist at ING Bank NV. "Looking ahead, however, there is increasing evidence that the economy should pick up speed again very quickly."

In a report released this week, the economy ministry said that though weak developments in industrial output and construction point to a decline in overall economic performance in the fourth quarter of 2012, there are increasing signs that we will soon overcome this period of weak economic growth.

The stabilization of global financial markets and the real economy increased the confidence of businesses and consumers about Germany's economic prospects, the ministry said on February 11.

The economy expanded 0.7 percent in 2012, matching the statistical office's earlier findings. The rate of growth was much weaker than 3 percent expansion recorded in 2011.

The fourth quarter GDP decline was mainly due to relatively weak German foreign trade performance, the statistical office said. Merchandise exports declined at a faster pace compared to imports.

Household and government final consumption expenditure went up slightly. Gross fixed capital formation in construction decreased marginally while gross fixed capital formation in machinery and equipment recorded a marked decline, Destatis said.

Meanwhile, Insee said that the French economy recorded zero growth in 2012 compared to the 1.7 percent expansion in 2011. The government had forecast 0.8 percent growth.

In the final three months of the year, household consumption increased 0.2 percent after 0.3 percent growth in the third quarter. However, investment fell 1 percent following a 0.5 drop in the previous quarter.

Therefore, the contribution of total domestic demand, excluding inventory changes, to the overall GDP was neutral.

Exports, meanwhile, slipped 0.6 percent after 0.7 percent growth in the third quarter. Imports declined 0.8 percent, faster than the previous period's 0.5 percent drop. Thus foreign trade balance contributed 0.1 percentage point to the GDP, but less than the 0.3 percentage point added in the previous quarter.

Changes in inventories continued to weigh on growth in the fourth quarter by deducting 0.4 percentage point from GDP last quarter.

RTTNews