Economy

German economic growth slows in June

Vidya Ram London | Updated on August 18, 2011 Published on August 16, 2011

EURO ZONE FEARS

Fears about the euro zone intensified on Tuesday, as Germany “the economic stalwart of the region” saw its growth in the three months ending in June slow to 0.1 per cent, quarter-on-quarter. Not only was it lower than expectations of 0.5 per cent, but the nation's Federal Statistics office also revised down first quarter growth to 1.3 per cent.

With Friday's announcement that France had stagnated in that quarter, the figures raise new concerns about the ability of policy makers to tackle the crisis in southern Europe. The 0.2 per cent growth seen across the 27-nation EU area was instead boosted by countries such as Austria, Belgium, and Finland. Even Spain and Italy outperformed Germany.

“Germany and France were the star performers of the euro zone economy. There was a great deal of hope that strong growth in the core countries would provide at least some scope for the periphery to benefit from expansion and at least keep it out of a double-digit recession,” said Mr Chris Williamson, Chief Economist at Markit in London, who argues there is evidence that the weakness persists into the third quarter.

The German figures marked a “normalisation” of growth after a very strong start to the year, argues Mr Christian Schulz, Senior Economist at Berenberg Bank in London.

There were some one off factors that hit Germany in the second quarter: construction activity in the first quarter had been sharply higher after an especially cold end to 2010, while domestic consumer spending was hit by fears about the plight of the euro zone, inflation, the Japanese earthquake and the June E. Coli outbreak.

During the period, German exports also fell relative to imports, though Mr Schulz argues this isn't necessarily a negative. “We think the economy is in need of rebalancing,” he says, adding that the fall could provide opportunities for other European countries to boost their exports.

Still, the strength of economies such as Germany and France was one of the reasons that the European Central Bank felt able to raise its main interest rate to 1.5 per cent in July. Shifting economic patterns may well force a reversal.

Published on August 16, 2011
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