German economy sees sharp slowdown in Q2

REUTERS - German gross domestic product growth slowed more than expected in the second quarter, weighed by a negative trade balance, flagging consumption and weak construction investment, the statistics office said.

Growth dropped to 0.1 percent in seasonally adjusted terms, from a revised 1.3 percent in the first three months of the year, the preliminary data released on Tuesday showed, leading some economists to rethink other forecasts.

With French figures last week showing its economy stagnated in the second quarter, the poor German numbers suggest the 0.3 percent forecast for euro zone growth, due at 0900 GMT, could well be optimistic.

“This is a serious disappointment,” said Joerg Lueschow from West LB. « German, too, cannot evade global slowdown... This does not provide any positive signs for euro zone GDP. We cannot expect more than stagnation now. »

The reading, which compared to a Reuters consensus forecast for a 0.5 percent expansion, was the weakest since the first quarter of 2009, when Germany was still exiting the financial crisis and GDP contracted.

Quarterly growth had been initially reported at 1.5 percent for the first quarter. The statistics office said that data dating back to 1991 had been revised as part of a wide-reaching revision conducted every five years.

The data should also add worry to already fragile markets ahead of a meeting later in the day between German Chancellor Angela Merkel and French President Nicolas Sarkozy in Paris.

Germany, Europe’s largest economy, has been a star performer in the industrialised world since the end of the 2008 financial crisis, and a sharp slowdown in German growth would have repercussions elsewhere in the euro zone.

“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,” said ING economist Carsten Brzeski.