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German Economy Contracts In Q2 On Exports

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Germany's economy contracted in the second quarter as weaker global growth and trade wars dampened foreign demand for goods produced in the largest euro area economy, data from Destatis showed Wednesday.

Gross domestic product shrank 0.1 percent sequentially in the second quarter, almost entirely reversing the first quarter's 0.4 percent expansion. This was the first fall in three quarters and matched economists' expectations.

After calendar adjustments, GDP gained 0.4 percent year-on-year, but slower than the 0.9 percent growth registered in the first quarter. At the same time, the unadjusted GDP remained flat.

Data revealed that positive contribution to sequential growth came mainly from domestic demand. Household final consumption expenditure increased, together with government final consumption expenditure.

Investment increased from the first quarter, but gross fixed capital formation in construction declined.

The development of foreign trade dampened economic growth as exports logged a stronger quarter-on-quarter decline than imports, Destatis reported.

Carsten Brzeski, an ING economist, said trade conflicts, global uncertainty and the struggling automotive sector have finally brought the German economy down on its knee.

The country needs a two-pillar stimulus package: a short-term stimulus and an increase in the long-run growth potential, the economist added.

The bottom line is that the German economy is teetering on the edge of recession, Andrew Kenningham, an economist at Capital Economics, noted.

Among major counterparts, France's growth decelerated to 0.2 percent from 0.3 percent. Spain expanded 0.5 percent, but this was the weakest in five years and Italy's GDP remained flat in the second quarter.

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