Disappointing GDP Data German Slowdown Sapped Euro-Zone Growth in Second Quarter

German economic growth slumped to a lower-than-expected 0.1 percent in the second quarter, and the euro zone grew just 0.2 percent, heightening market jitters about the debt crisis ahead of a key Franco-German summit on Tuesday.

A German steelworker in Duisburg: Germany's boom appears to have stalled.

A German steelworker in Duisburg: Germany's boom appears to have stalled.

The German economy came close to stagnating in the second quarter as growth slumped to 0.1 percent from the previous three months in a fresh sign that the boom in Europe's economy is coming to an end, preliminary official data released on Tuesday showed.

The figures were significantly weaker than expected. Economists polled by Reuters had forecast growth of 0.5 percent on average. It was the weakest growth since the first quarter of 2009.

"This is a serious disappointment," West LB economist Jörg Lüschow said. "Many growth forecasts will now likely be lowered and we will do so too." The news hit European share prices and the euro.

The Federal Statistical Office also revised down German first-quarter growth to 1.3 percent from a previously reported 1.5 percent. Second-quarter growth slowed because imports rose faster than exports, the office said, adding that private consumer spending and construction investment also acted as brakes.

Figures released later in the day showed euro-zone growth decelerated to 0.2 percent -- less than the 0.3 percent expected -- from 0.8 percent in the first quarter.

Germany, France Drag Down Euro Zone

The main reason for the easing of euro-zone growth was the slowdown in its two largest economies, Germany and France. French GDP stagnated in the second quarter.

The data is a further cause for market concern as Europe grapples with the euro debt crisis. German Chancellor Angela Merkel and French President Nicolas Sarkozy are set to meet in Paris on Tuesday amid mounting calls around Europe for them to agree to the introduction of euro bondsto help solve the crisis. However, Merkel is unlikely to sign up to such a move at this stage because there is bitter opposition to euro bonds within her center-right coalition.

Year-on-year, the German economy continued to show strong growth, however, with seasonally adjusted real GDP up 2.7 percent in the second quarter. After contracting by 4.7 percent in 2009 during the global economic slump, the German economy grew 3.6 percent last year.

Carsten Brzeski, an economist at ING, said the German figures were no reason for panic. "After the overwhelmingly strong first quarter and in the light of several external shocks such as the earthquake in Japan, the rise in oil prices and the weakening of the US economy, the GDP figures should be regarded as a normalization rather than a disappointment," he said.

cro -- with wire reports


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