German Economy Is Running Out of Steam

Europe's economic engine beginning to slow down.  Will we see Q3 GDP print a negative number?

From Spiegel

Slowdown in Second QuarterGerman Economy Is Running Out of Steam

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A container ship in the port of Hamburg. Exports are helping to buoy the German economy -- but for how much longer?

German economic growth slowed to 0.3 percent in the second quarter from 0.5 percent in the first, new figures showed on Tuesday. The numbers have economists warning that the euro-zone slowdown and weaker global growth are about to catch up with Germany, where the economy may even shrink in the third quarter.

The German economy continued to defy the euro crisis and grew 0.3 percent in the second quarter, buoyed by exports and consumer spending, but economists warned that GDP could contract in the third quarter.

The growth rate, released by the Federal Statistics Office on Tuesday, marked a slowdown from 0.5 percent in the first quarter. "Positive impetus came from consumption as well as from the net exports," the office said in a statement. That offset a decline in investments, particularly in industrial equipment.

Compared with other euro-zone countries, German is doing well. The second-quarter growth compares with declines of 0.7 percent in Italy, 0.6 percent in Belgium and 0.4 percent in Spain. The French economy stagnated and the entire 17-nation euro zone is expected to show a GDP contraction of 0.2 percent in the same period.

Economists say the German economy may shrink in the third quarter to end-September. Leading indicators such as the Ifo business climate index point to a slowdown in economic activity due to falling demand for German exports in Europe, the US and emerging markets, especially China, which has been a major source of German export growth.

In July, the Ifo index, based on a survey of 7,000 German firms, fell to its lowest level since March 2010. The German government recently admitted that there are "considerable risks" attached to the country's economic outlook.

'The Last Piece of Good News From Germany'

Nevertheless, the stronger-than-expected numbers gave the euro a lift, pushing it up half a cent against the dollar to $1.2387 on Tuesday morning.

Commerzbank chief economist Jörg Krämer said the German economy had delivered solid growth in the second quarter. "But for the time being that is likely to have been the last piece of good news from Germany," he added. Despite its structural strengths, the economy wouldn't be able to escape the euro-zone recession and weakening global growth for much longer.

Germany's outlook now hinges on what happens in the euro crisis, economists said. If governments manage to douse the flames in the coming months, Germany could recover quickly. But that may be wishful thinking. Europe faces a make-or-break autumn. Greece is expected to need fresh aid, Spain and Italy are wobbling and Chancellor Angela Merkel faces a possible coalition rebellion against any further measures that could increase the risk to German taxpayers.