German growth beats forecasts


German economic growth slowed less than economists forecast in the second quarter as exports and household spending helped to fend off the sovereign debt crisis

Gross domestic product rose 0.3 per cent from the first quarter, when it gained 0.5 per cent, the Federal Statistics Office said in Wiesbaden today.

Economists predicted a 0.2 per cent increase, according to the median of 40 estimates in a Bloomberg News survey.

French GDP was unchanged in the quarter, better than the 0.1 per cent decline economists had predicted. While Europe's largest economy defied the debt crisis in the first half of the year as unemployment at a two-decade low and rising wages bolstered domestic spending, the worsening turmoil is starting to take its toll.

With at least seven of the 17 euro-area nations in recession, demand for German goods is waning in its biggest export market. Business confidence fell for a third straight month in July and manufacturing is contracting.

"Germany's economy is very export-dependent," said Tobias Blattner, an economist at Daiwa Markets International in London. "When things are going well, that's its strength; when they don't, it's the Achilles heel. We'll be lucky if we have flat growth for the rest of the year."

Second-quarter expansion was driven by consumption and net trade, with exports rising more than imports, the statistics office said in today's report.

That compensated for a decline in company investment, particularly in plant and machinery. From the same quarter last year, the economy grew a work-day adjusted 1 per cent.

The euro was little changed after the data at $1.2360, up 0.2 per cent today.

German expansion prevented the euro region from slipping into recession in the first quarter by offsetting weakness in the periphery.

Economists don't expect it to repeat that feat in the second. The euro-area economy contracted 0.2 per cent in the three months through June, according to the median of 35 estimates in a Bloomberg survey.

The European Union's statistics Office in Luxembourg will release that report at 11am today.

The European Commission forecasts a 0.3 per cent contraction for the euro economy this year.

By contrast, the Bundesbank in June raised its 2012 growth forecast for Germany to 1 per cent from 0.6 per cent, citing domestic consumption.

The global economy is also cooling, undermining some German companies' push into emerging markets like China. The International Monetary Fund on July 16th cut its global growth forecast for 2013 to 3.9 per cent from a 4.1 per cent estimate in April.