German economic growth stalls in second quarter

11th August 2005, Comments 0 comments

11 August 2005, BERLIN - German economic growth stalled in the second quarter, data released Thursday showed, as Europe's biggest economy slowed in the wake of a surge in oil prices.

11 August 2005

BERLIN - German economic growth stalled in the second quarter, data released Thursday showed, as Europe's biggest economy slowed in the wake of a surge in oil prices.

Despite another strong performance by exports and a recent batch of better-than-expected economic data and indicators, Germany's statistics office said the nation's seasonally and calendar-adjusted gross domestic product (GDP) slumped to zero in the three months to the end of June. This was in line with analysts' forecasts.

The release of the data comes as Germany gears up for an early election in mid-September.

The addition of two extra working days helped to lift Germany's unadjusted year-on-year growth to 1.5 per cent during the second quarter with exports being the key driving force behind economic expansion as the euro weakened during the quarter.

The economy slumped by 0.3 per cent in the first three months of the year.

"The economy lost momentum but it has already recovered from this setback", said Andreas Scheuerle, economist with the DekaBank, with data showing the economy picking up speed from the end of June.

Despite the drop in second-quarter growth, Economics and Labour Minister Wolfgang Clement insisted that economic activity would accelerate during the second half of the year.

Nevertheless, economists believe that the German economy will be lucky to reach a one per cent growth rate during 2005.

Taking into account calendar effects, the German economy grew by 0.6 per cent year-on-year during the second quarter. This compares to 0.8 per cent in the first quarter.

But while domestic demand gained momentum, imports acted as a drag on the nation's growth, the statistics office said.

"Although foreign trade continued to be dynamic in the second quarter of 2005, the strong rise in imports led to net trade making a slightly negative contribution to growth, which fully offset the rise in domestic demand," said the statistics office.

In releasing the data, the statistics office said that it was revising down the country's first-quarter growth from one per cent to a still solid 0.8 per cent.

With high unemployment weighing on domestic demand and consumer confidence, economists saw the latest data as underscoring the fragility of the German economy.

"The German economy remains strongly dependent on global economic developments," said Matthias Rubish, economist with Germany's Commerzbank AG.

As a sign of the economic impact of soaring oil prices, the statistics office released a separate report showing inflation in Germany edging up to an annual 2 per cent in July compared to 1.7 and 1.8 per cent in the two previous months.

The statistics office is to provide a full break-down of the GDP data on August 23.

DPA

Subject: German news

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