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German, French 2Q GDP Tops Expectations

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The German economy grew more than expected in the second quarter, supported by domestic consumption and net exports. Meanwhile, the French economy stalled for a third successive quarter due to weak demand both at home and abroad.

The German gross domestic product rose 0.3 percent quarter-on-quarter in the second quarter, while expectations were for 0.2 percent growth. This followed a 0.5 percent GDP expansion in the first quarter and a 0.1 percent contraction in the fourth quarter of 2011.

Positive contributions came mainly from final consumption expenditure and net trade.

The German economy has once again escaped the technical recession many other Eurozone countries are currently experiencing with no more than a fright, Carsten Brzeski, an economist at ING Bank NV said. "In fact, the economy remains the stronghold of the Eurozone."

However, according to Brzeski, "another strong quarter merely glosses over the fact that even the stronghold has already caught the euro crisis virus."

Germany's short-term debt fetched negative yields at an auction on Monday as investors effectively paid to lend money to the government in their scramble to safe-havens.

The statistical office said that the increase in exports was slightly larger than the increase in imports. Domestic consumption was higher than in the previous quarter. This compensated for the decrease in capital formation observed especially for machinery and equipment.

The year-over-year comparison revealed that GDP was up 0.5 percent compared to the 0.9 percent expansion expected by economists. This, however, was slower than the 1.7 percent gain in the March quarter. In calendar-adjusted terms, GDP increased 1 percent annually. This was slightly weaker than the 1.1 percent rise forecast by economists and the 1.2 percent increase recorded in the first quarter.

Separately, the French statistical office Insee reported that its GDP recorded no growth in the second quarter, as was the case in the past two quarters. Economists had forecast a 0.1 percent contraction.

The fourth quarter GDP growth for 2011 was revised to show a flat reading from the previously reported 0.1 percent growth. Bank of France had predicted a 0.1 percent decline in GDP for the second quarter and a similar size contraction for the third quarter.

In the second quarter, household spending declined 0.2 percent, while gross fixed capital formation increased 0.6 percent. Overall, total domestic demand, excluding changes in inventories, drove GDP on for just 0.1 percentage points of growth.

France's import growth accelerated to 1.8 percent, while export growth remained subdued at 0.2 percent. Consequently, foreign trade balance contributed again negatively to GDP growth by 0.5 percentage points.

Changes in inventories contributed positively to overall growth in the second quarter, adding 0.3 percentage points to GDP.

Eurostat is set to release second quarter GDP data for the euro area at 5 am ET. Economists expect a 0.2 percent contraction in GDP for the second quarter after the region's narrow escape from a technical recession in the previous three months.

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