Eurozone economic motor Germany sees growth rate drop to 0.1 percent

Washington Post:  FRANKFURT, Germany — Germany’s economic growth nearly ground to a halt in the second quarter, in another downbeat sign for the global economy.

Its quarterly growth of only 0.1 percent was way below market expectations for a 0.5 percent increase, and follows similarly disappointing readings for France and the United States.

Until now Germany’s economy, Europe’s biggest, had been growing strongly as its world-renowned companies tapped export markets all around the world, particularly in faster-growing emerging countries. Its industrial prowess had in many ways cushioned it from a government debt crisis that’s afflicting the 17 countries that use the euro.

Germany’s state statistical agency said Tuesday that lagging consumer spending and construction investment were largely behind the growth slowdown in the April-June period.

“Let’s face it, 2Q marks a turning point in the German business cycle,” said Unicredit chief German economist Andreas Rees. “The period of exuberant growth is now behind us. Less dynamic momentum will be in the pipeline in coming quarters, given the slowdown of the global economy.”

Rees said that the up-and-down nature of quarterly figures meant a rebound in the third quarter couldn’t be ruled out. He said German companies have large industrial order backlogs that will keep them busy and help output in coming months.

Analyst Gregor Eder at Allianz also noted that energy production showed an unusual 8 percent drop in the quarter. While the figures do not break out nuclear power, the shutdown of eight nuclear plants after the Fukushima tsunami and nuclear disaster in Japan appears to be behind the drop.

“That had to be it,” said Eder. “We are strongly assuming that was the reason.”

Eder said the economy would have grown 0.5 percent as expected, if the energy slowdown and weaker construction investment following a very strong first quarter were discounted.

The second-quarter figure was way down on the 1.3 percent growth recorded in the first quarter, when the economy was boosted by strong exports of cars and industrial machinery. That figure itself was revised down from 1.5 percent in earlier releases.

Top German corporate executives have cautioned that growth could be less impressive in the second half of the year due to volatile raw material prices and economic and financial turmoil over the heavy levels of government debt in Europe and the U.S.

The second-quarter figure looked better compared with the same quarter a year ago, rising 2.7 percent.

Slowing growth in Germany weighs on overall growth in the eurozone. A slowdown in the zone’s biggest country would give the European Central Bank more reason to avoid more interest rate increases this year. Analysts said the German figures may mean that eurozone economic growth for the quarter — due later — could well be below the 0.3 percent forecast.

“The weak data for Germany follow recent numbers showing zero growth in France in the second quarter, and raises concerns that the euro area’s hitherto strong core countries are undergoing a much deeper than previously thought soft patch,” said Chris Williamson, chief economist at financial information company Markit.

It’s not just Europe that’s slowed down. The U.S. economy is growing at a far slower rate than previously thought while figures Monday showed Japan contracted further in the second quarter in the wake of March’s devastating earthquake and tsunami.