German economic growth slows sharply

 
German factory worker Germany had been helping to drive the economic recovery in Europe

Growth in the German economy slowed sharply between April and June and was weaker at the start of the year than previously thought, figures show.

The economy grew by just 0.1% in the quarter, according to figures from the national statistics office. Growth in the eurozone as a whole also slowed.

Germany had been driving the economic recovery in the eurozone.

The figures came as German Chancellor Angela Merkel and French President Nicolas Sarkozy held crunch talks.

The two leaders discussed ways to solve the eurozone debt crisis that has threatened to engulf Italy and Spain and has sparked turmoil on global stock markets.

Figures also released on Tuesday showed that eurozone economic growth slowed to 0.2% in the second quarter, down from 0.8% in the previous three months.

Growth in Spain slowed to 0.2% from 0.3%, while the Italian economy picked up slightly, growing by 0.3% against 0.1% in the first quarter.

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There is no serious momentum in economic activity that gives endless time to the leaders of the eurozone to agree measures that will provide reassurance to creditors and investors that Spain and Italy will ultimately be able to pay all their debts”

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The weak growth figures are expected to raise further questions about the strength of the eurozone economy, particularly in light of figures released last week showing that French economic growth came to a standstill between April and June.

European markets fell in early trading following the growth data, but recovered slightly by mid-afternoon. Frankfurt's Dax index was down 1.1%, the Cac 40 in Paris lost 0.9% and London's FTSE 100 falling 0.4%.

In New York, the Dow Jones index opened slightly lower.

Markets had recovered slightly on Friday and Monday from high volatility last week and sharp falls the previous week.

'Serious disappointment'

In addition to the weak second-quarter growth figure, the estimate for German economic growth in the first quarter of the year was revised down to 1.3% from a previous estimate of 1.5%.

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Germany's statistics office Destatis said that while exports grew during the second quarter, a sharp rise in imports "had an altogether negative impact on economic growth".

A fall in household spending also contributed to the drop-off in growth, it said.

"This is a serious disappointment," said Joerg Lueschow at West LB.

"I was surprised that private consumption went down. As a whole, Germany cannot evade the global slowdown."

Balanced budgets

Even France, the bloc's second-biggest economy, was drawn into the crisis last week amid rumours, which were denied on all sides, that it could lose its top-ranked AAA credit rating.

Analysis

The puzzle for Chancellor Merkel and President Sarkozy is how to keep the eurozone system intact, in its present form of 17 member states, without promising endless bailouts if weaker economies continually fail to put their finances in order.

German economic growth until now has been the potential buffer. But if the latest figures of a measly 0.1% growth for the second three months of the year turn from a blip into a trend, two things happen.

The likelihood of a return to recession in Europe is increased - and that would put more pressure on the public finances of Greece, Portugal, Ireland, Italy, Spain and everybody else.

And the reluctance of the German taxpayer to deliver rescue money in return for the continuance of the euro might be increased.

German economists think two things are going on. One is that consumers seem to have got more fearful and are starting to save rather than spend, not that they were spending crazily before.

And the second is that exports seem to have faltered, and they attribute that to a malaise across the rest of Europe which is Germany's prime market.

Mrs Merkel and Mr Sarkozy have begun key talks on how best to solve the eurozone debt crisis.

Reports had suggested the leaders would discuss the possible introduction of so-called eurobonds - IOUs issued to investors backed by the bloc as a whole rather than individual countries.

Italy has backed the idea, while billionaire investor George Soros told the BBC that the bonds could be an effective way of reducing the borrowing costs of highly-indebted nations.

However, both Berlin and Paris have said eurobonds will not be discussed.

Both French and German leaders, along with the European Central Bank, are putting pressure on so-called peripheral economies to extend austerity measures to try to balance their budgets.

Major economies are also making cuts - Italy announced tougher austerity measures designed to reduce its budget deficit on Friday, while Spain has also said it will speed up spending cuts.

However, there are fears that spending cuts by governments will undermine overall economic growth.

In an article published in the Financial Times newspaper, the head of the International Monetary Fund, Christine Lagarde, warned governments that they must balance spending cuts with measures to support growth to avoid the risk of a double-dip recession.

Ms Lagarde acknowledged the need for governments to reduce debt levels, but said "slamming on the brakes too quickly would hurt the recovery and worsen job prospects".

It could also undermine further the confidence of international investors, she said.

"While [markets] dislike high public debt - and may applaud sharp fiscal consolidation - they dislike low or negative growth even more."

 

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  • rate this
    +7

    Comment number 28.

    To mix up the Euro with Germany's current state is politically motivated and confusing. Germany has a predominantly exporting and manufacturing economy. Less people in Asia, where the growth was still taking place, are currently buying. This equally applies to the UK to a lesser extent as we do not manufacture mass market high quality goods as much.

  • rate this
    -1

    Comment number 27.

    The only way to save the Euro is by financial & political amalgamation of all Euro member states.
    Where does that leave democracy?
    Thank goodness the UK are not part of the Euro project, although a nationalised Scottish government would sign us up in the blink of an eye.

    One thing often said about the Euro was peace after WW2. I can see trouble ahead and want no part of it.

  • rate this
    +11

    Comment number 26.

    @9 James Hohman: Unfortunately, the post completely disregards the developments of Germany after WWII. Believe me, Germany is well aware of its past and will never forget the fact that the allies freed the country from the Nazis.
    However, I do believe that many people in the UK are not aware of Germany's democratic and peaceful development with positive contribution especially to Europe.

  • rate this
    +5

    Comment number 25.

    Everyone is missing the bigger picture, including governments & the banks dont really care. The issue is, we cannot keep having growth it cannot be sustained. Growth can only be eventually supported by population growth which fuels this growth. The earth and its resources is struggling to cope with the world currently, therefore we need a worldwide re-think on the whole issue. Else we all suffer

  • rate this
    +3

    Comment number 24.

    In response to anotherfakename I am an American obviously not alive at the time of the American Civil War but I have indirectly benefited from economic strength built on slave labor. I have no objection to using my taxes to help rectify the lingering effects of that tragedy. I would gladly let the occasional beer swiller escape to help the the many others who without blame face a dire future.

  • rate this
    0

    Comment number 23.

    It amazes me that people take so long to grasp what is going on. The West has had its day. (I'm not the usual 'bash the west brigade' Im observing a change in the world). The West got to power, stood up to the USSR, but also lived on debt. The East is the power of the centuries to come. We have to focus on growing food and pulling our claws in, then be ready to defend our small islands.

  • Comment number 22.

    All this user's posts have been removed.Why?

  • rate this
    0

    Comment number 21.

    As always, l find the denial by the Eurozone to face reality of the fall

    of the euro, hard to accept. Savingl loss of face by our leaders seems

    important than saving Europe from collapse.

  • rate this
    +1

    Comment number 20.

    1 1963Tiger
    "At least Germany manufactures things people want"

    According to the main BBC story, the problem is domestic consumption and import costs.

    So either the German economy is not making things Germans want or their raw material cost base is too high.

    Domestic sentiment is difficult to change as #13 Dave H points out and raw materials are going up all over.

  • rate this
    +6

    Comment number 19.

    The Euro is now on the precipice and just like a high stakes poker game the only choices are 'All In' or 'Fold' and the consequences for 'all in' are less severe (at least in the short run, and medium term). German taxpayers will unfortunately have to bear greater fiscal integration which they will bankroll and at the same time Italians, Spanish and Greeks will have to bear fiscal tightening

  • rate this
    -1

    Comment number 18.

    The cost of trying to prop the euro up can only escalate beyond the means of any country(ies) to pay it. Still not factored into all of this is that Portugal is hugely indebted to Spanish banks and many of THOSE banks failed the recent stress test. Merkel understands that the market knows this.

    Look, it's done. They are already printing D-Marks. We are in for a long period of economic chaos.

  • rate this
    +2

    Comment number 17.

    If the Germans havee kept Europe afloat, then it might be they have reached their sell by date. And if the German economy goes into a big dip, then maybe it's lights out all around the EU. That, or a step nearer a federal Europe, probably the thinking behind the euro to begin with.

  • rate this
    0

    Comment number 16.

    Wasn't it just a month ago that the ECB raised interest rates to curb rampant inflation thus further suffocating Europe? Bring EU interest rates in line with the US & UK. This will stimulate exports, create jobs and with modest inflation will reduce the debt burden in part imposed on governements to bail out insolvent banks.

  • rate this
    +6

    Comment number 15.

    @9.JAMES HOHMANN
    Tell you what then... why don't the Italians help out - they ruled most of Europe... And the Spanish can bail out south America, we can bail out half the world... Theres few in Germany now who took part in either war
    On another note... do you like working so your taxes can pay for someone to sit at home watching a huge TV and drinking beer? Thought not. Why should the Germans?

  • rate this
    -1

    Comment number 14.

    No surprise here.

    No doubt the British taxpayer will be asked to bail them out in due course.

  • rate this
    +7

    Comment number 13.

    ""I was surprised that private consumption went down."

    This from an expert? We're all expecting to be screwed for higher taxes and costs due to the mistakes made by people who were supposed to be in charge, and he's surprised that people are preparing for the worst and saving up to get through the times ahead.

  • rate this
    -1

    Comment number 12.

    Hopefully we'll now hear no more from Stalinist-in-Chief Shadow Kanzler Ed Balls about the German approach. Truth is you don't respond to a debt crisis with more debt. This is true both of overly indebted states like the United Kingdom, and the Eurozone periphery having ruinous loans pressed upon them by the elites.

    Euro is doomed. But they'll ruin us all first trying to save it.

  • rate this
    +9

    Comment number 11.

    The Euro is not a success, because each country has its own tax and social-security programme. An international currency can only work when the basic conditions of all partners are the same. This also applies to Euro-Bonds. The European economy has been built from the roof downwards and that is the main reason for a possible collapse.

  • rate this
    +8

    Comment number 10.

    The pound shop mentality of cheap goods and services does nothing for the global economy but the real drain is corruption and organised crime that destroys economies.

  • rate this
    -16

    Comment number 9.

    So German taxpayers are reluctant to provide rescue money to save the Euro. One would think that a country that twice spared no expense to destroy Europe in the last century would jump at the chance to use their wealth to show they can do something beyond their borders that strengthens their neighbors instead of subjugating them . It seems German discipline is once again serving itself.

 

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