German economy slows sharply between April and June
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 provisional figures from the national statistics office.
Germany had been driving the economic recovery in the eurozone.
The figures come ahead of a key meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy.
The two leaders will discuss 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 Spanish economic growth slowed to 0.2% in the second quarter, down from 0.3% in the previous three months.
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.
Growth figures for the rest of the eurozone will be released later.
European markets opened lower following the growth data, with Frankfurt’s Dax index down 1.9%, the Cac 40 in Paris losing 1.4% and London’s FTSE 100 falling 1.1%.
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%.
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.
“This does not provide any positive signs for eurozone GDP. We cannot expect more than stagnation now.”
Balanced budgets
Mrs Merkel and Mr Sarkozy are due to begin their crunch talks on the debt crisis soon after European stock markets close.
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.
Both 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.”
Source: BBC