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16 August 2011

FT: Sharp fall in German economic growth


German economic growth slowed to a near standstill in the second quarter of this year, dealing a further, unexpected blow to eurozone prospects.

The surprise deceleration in activity in Europe’s largest economy will add to fears of a global slowdown and possible double-dip recession in some countries – and will complicate the challenge facing eurozone policymakers as they seek to combat the region’s escalating debt crisis.

Germany's federal statistics office reported on Tuesday that German gross domestic product increased by only 0.1 per cent in the three months to June, compared with the previous quarter. Data for the first quarter were also revised down to show a rise of 1.3 per cent compared with the 1.5 per cent originally reported. Germany’s disappointing data followed unexpectedly weak French GDP figures on Friday, showing growth in the eurozone’s second largest country was flat in the second quarter, and weakened stock markets across Europe. The euro slid from three-week highs against the dollar.

Carsten Brzeski, economist at ING in Brussels, said the latest data still marked a “return to normality” rather than disaster. The “million dollar question” was whether the second quarter marked the “beginning of the end” of Germany’s economic miracle “and whether recent market turmoil could push the economy back into recession”. But he concluded: “Strong economic fundamentals still seem to outweigh fading sentiment driven by market developments.” Nevertheless, Christian Schulz, economist at Berenberg Bank, warned that significant risks could “stem from a loss of confidence due to the European debt crisis and its percieved cost to the German tax payer”.

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© Financial Times


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