German Q2 growth disappoints, Q1 revised downwards

16th August 2011, Comments 0 comments

Germany Tuesday reported meagre 0.1-percent economic growth in the second quarter and slower first-quarter expansion than initially reported, raising fears the eurozone powerhouse is losing momentum.

Analysts polled by DowJones Newswires had forecast 0.4 percent growth for the second quarter in the eurozone's top economy as the club grapples with a crippling debt crisis.

"The dynamism in the German economy has cooled significantly since the robust start to the year," the federal statistics office (Destatis) said in a statement.

It revised the first-quarter growth figure down to 1.3 percent from the 1.5 percent originally reported.

Destatis said the 0.1 percent growth in the second quarter compared to the first quarter came based on only anaemic expansion in exports, the backbone of the German economy.

Imports rose in the second quarter more than exports, undermining the growth figures, as consumer spending and investment in construction also slipped.

The figures were stronger in a year-on-year comparison, with gross domestic product rising 2.8 percent in the second quarter.

Chancellor Angela Merkel, who is to huddle with French President Nicolas Sarkozy later Tuesday in Paris for talks on the eurozone crisis, said last month she expected German growth to reach a similar level this year to the rate in 2010, when it hit 3.6 percent.

In late May, Merkel had said it was likely that gross domestic product would rise more than three percent this year, in line with the forecasts of most economists and key institutions.

The Bundesbank central bank expects 3.1 percent expansion this year while the International Monetary Fund has forecast 3.2 percent growth.

The government's official forecast, reported in April, remains at 2.6 percent but economic data since then had made that prediction seem timid.

Analyst Carsten Brzeski of ING Bank said the at least preliminary end to the Germany economy's breakneck growth streak would shape the debate over Berlin's role in helping to rescue stricken eurozone countries.

"The speed of the recovery is slowing and the economy has returned to normality," he said.

"While German politicians are currently racking their brains on the pros and cons of common eurobonds, the luxury of having an economy running at 'wonder' speed is fading away."

The idea of eurobonds issued and guaranteed by countries with better credit ratings has long been floated as a way of helping struggling eurozone members.

Germany is opposed to their introduction as it believes it would increase its own borrowing costs and allow countries to duck badly needed reforms.

Merkel and Sarkozy said they would discuss how to improve the eurozone's governance and coordination of economic policy in their meeting Tuesday but ruled out a discussion of eurobonds.

© 2011 AFP

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