August 16, 2011

German Economy Hits the Brakes

Growth stagnates, hits stocks and euro in advance of meeting

Germany’s economy skidded nearly to a halt in the second quarter, according to figures released Tuesday by the Federal Statistics Office in Wiesbaden.

Stocks and the euro both fell on the news, which reflected the weakest growth Germany has seen since it emerged from its recession two years ago. There was hope, however, that a meeting scheduled for later in the day between German Chancellor Angela Merkel and French President Nicolas Sarkozy would offer some new measures to cope with the euro zone debt crisis.

Germany actually grew at a slower pace than debt-troubled Spain, which gained 0.2% for Q2. Instead of market expectations of 0.5%, it added 0.1% to GDP, reflecting a slowdown in the global economy. That echoed an overall trend in the European Union (EU), which saw its GDP slow from a Q1 total of 0.8% to a Q2 figure of 0.2%.

France, as earlier reported by AdvisorOne, saw its growth come to a dead stop in Q2. Oddly enough, Italy, which has been the latest focus of debt contagion fears, saw its own economy grow by 0.3%.

Private consumption was down, cutting growth, and imports were up more than exports, adding to the drag.

However, Bloomberg reported a bright spot in Germany’s economy: orders already in hand. Andreas Rees, chief German economist at UniCredit Group in Munich, was quoted in the report saying, “… German companies do have one major trump card up their sleeve that will soften the negative effects stemming from a slowing global economy—very high backlog orders which can be worked off in coming months.”

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