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German Growth Slowed Less Than Forecast in the Second Quarter

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Date : Tue, 2012-08-14 06:46
German economic growth slowed less than economists forecast in the second quarter as exports and household spending helped to fend off the sovereign debt crisis.


Gross domestic product rose 0.3 percent from the first quarter, when it gained 0.5 percent, the Federal Statistics Office said in Wiesbaden today. Economists predicted a 0.2 percent increase, according to the median of 40 estimates in a Bloomberg News survey. French GDP was unchanged in the quarter, better than the 0.1 percent decline economists had predicted.

While Europe’s largest economy defied the debt crisis in the first half of the year as unemployment at a two-decade low and rising wages bolstered domestic spending, the worsening turmoil is starting to take its toll. With at least seven of the 17 euro-area nations in recession, demand for German goods is waning in its biggest export market. Business confidence fell for a third straight month in July and manufacturing is contracting.

“Germany’s economy is very export-dependent,” said Tobias Blattner, an economist at Daiwa Markets International in London. “When things are going well, that’s its strength; when they don’t it’s the Achilles heel. We’ll be lucky if we have flat growth for the rest of the year.”

Second-quarter expansion was driven by consumption and net trade, with exports rising more than imports, the statistics office said in today’s report. That compensated for a decline in company investment, particularly in plant and machinery.

Euro Area

German expansion prevented the euro region from slipping into recession in the first quarter by offsetting weakness in the periphery. Economists don’t expect it to repeat that feat in the second. The euro-area economy contracted 0.2 percent in the three months through June, according to the median of 35 estimates in a Bloomberg survey. The European Union’s statistics Office in Luxembourg will release that report at 11 a.m. today.

The European Commission forecasts a 0.3 percent contraction for the euro economy this year. By contrast, the Bundesbank in June raised its 2012 growth forecast for Germany to 1 percent from 0.6 percent, citing domestic consumption.

Still, Moody’s Investors Service on July 23 lowered the outlook on Germany’s Aaa credit rating to negative, citing the risk that Greece could leave the euro and an “increasing likelihood” that countries such as Spain and Italy will require support.

Spain, Italy

Governments are struggling to restore investor confidence in their ability to plug budget gaps. Spain and Italy, the region’s third- and fourth-largest economies, are in recession and their borrowing costs have soared. Euro-area economic confidence dropped to the lowest in almost three years in July and some of the region’s largest companies, including Germany’s Deutsche Bank AG, announced job cuts.

The global economy is also cooling, undermining some German companies’ push into emerging markets like China. The International Monetary Fund on July 16 cut its global growth forecast for 2013 to 3.9 percent from a 4.1 percent estimate in April.

In the U.S., growth slowed to a 1.5 percent annualized pace in the second quarter from 2 percent in the first. In Japan, GDP advanced an annualized 1.4 percent in the three months through June, down from 5.5 percent in the previous quarter.

Bank of America Corp. this week cut its economic growth forecast for China this year to 7.7 percent from 8 percent.

Daimler AG (DAI), the world’s third-largest maker of luxury vehicles, last month reported a 13 percent decline in second- quarter operating profit. Volkswagen AG (VOW), Europe’s largest car maker and owner of the Audi brand, reported slowing earnings growth as the impact of the debt crisis weighed on demand in its home region.

Rising unemployment

While Germany’s jobless rate remains at 6.8 percent, the lowest since reunification two decades ago, the number of people out of work has risen in each of the past four months.

ThyssenKrupp Steel Europe AG, Germany’s biggest steelmaker, said on July 26 that it will introduce shortened shifts for workers this month due to “ongoing weak orders,” at least until the end of the year.

The European Central Bank has cut interest rates to a record low, easing financing conditions for households and companies, and pumped over 1 trillion euros ($1.24 billion) into the banking system to avert a credit crunch.

It’s not impossible that Germany will find itself in a recession by the end of the year, said Alexander Koch, an economist at UniCredit Bank AG in Munich. “But for now we just expect a temporary dip. People tend to underestimate the strength of the domestic economy.”

News reference:
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