The German Economy Just Keeps Growing, And Even France Avoids A Contraction

Aug. 14 (Bloomberg) — The German and French economies slowed less than forecast in the second quarter, fending off a debt crisis that has dragged at least seven of their euro-area neighbours into recession.

In Germany, 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 two largest economies defied the debt crisis in the first half of the year, the worsening turmoil is starting to take its toll by eroding demand for their exports. Italy and Spain, the region’s third- and fourth-largest economies, are in recession and economists forecast a 0.2 per cent drop in euro- area GDP for the three months through June. The European Union’s statistics Office in Luxembourg will release that report at 11 a.m. today.

“Unfortunately, Germany and France alone won’t prevent a euro-area economic contraction,” said Christian Schulz, an economist at Berenberg Bank in London. “Still, for Germany the outlook remains pretty robust. The third quarter will be hit by the crisis, but once it’s under control we’ll see a pick-up. For France, the outlook is less rosy.”

The euro rose after the data to trade at $1.2380 at 9:30 a.m. in Frankfurt, up 0.4 per cent today. Euro Stoxx 50 index futures jumped 0.5 per cent and those for the U.S. Standard & Poor’s 500 Index climbed 0.2 per cent.


‘Remarkable’ Germany

In Germany, 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 latest German GDP data are remarkable,” said Andreas Rees, chief Germany economist at UniCredit Bank AG in Munich. “One is inevitably tempted to ask whether the German economy can continue its decoupling action from the rest of the monetary union in the second half. Keep in mind that about 40 per cent of all German exports are shipped to euro-zone countries.”


Euro-Area Recessions

The Italian economy contracted 0.7 per cent in the second quarter, extending a recession that started last year. Spanish GDP fell 0.4 per cent for its third straight quarterly decline. Austrian growth slowed to 0.2 per cent in the second quarter from 0.5 per cent in the first, the WIFO institute said in Vienna today. The Dutch economy also expanded 0.2 per cent in the three months through June from the previous quarter.

The European Commission forecasts a 0.3 per cent contraction for the 17-nation 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.

Still, Moody’s Investors Service on July 23 lowered the outlook on Germany’s Aaa credit rating to negative, citing the risk that Greece could leave the euro and an “increasing likelihood” that countries such as Spain and Italy will require support.

Governments are struggling to restore investor confidence in their ability to plug budget gaps. Spanish and Italian borrowing costs have soared, euro-area economic confidence dropped to the lowest in almost three years in July and some of the region’s largest companies, including Germany’s Deutsche Bank AG, announced job cuts.


Global Slowdown

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

In the U.S., growth slowed to a 1.5 per cent annualized pace in the second quarter from 2 per cent in the first. In Japan, GDP advanced an annualized 1.4 per cent in the three months through June, down from 5.5 per cent in the previous quarter.

Bank of America Corp. this week cut its economic growth forecast for China this year to 7.7 per cent from 8 per cent.

Daimler AG, the world’s third-largest maker of luxury vehicles, last month reported a 13 per cent decline in second- quarter operating profit. Volkswagen AG, Europe’s largest car maker and owner of the Audi brand, reported slowing earnings growth as the impact of the debt crisis weighed on demand in its home region.


Rising Unemployment

While Germany’s jobless rate remains at 6.8 per cent, a two- decade low, the number of people out of work has risen in each of the past four months.

RWE AG, Germany’s second-largest utility, said today that first-half profit was unchanged as power sales fell and announced plans to cut 2,400 further jobs.

The European Central Bank has cut interest rates to a record low, easing financing conditions for households and companies, and pumped over 1 trillion euros ($1.24 billion) into the banking system to avert a credit crunch.

In France, company and government spending helped the economy avoid contraction, national statistics office Insee said in Paris.

“The biggest surprise was the rebound in fixed investment,” said Joost Beaumont, an economist at ABN Amro in Amsterdam. “Looking forward the outlook remains bleak,” he said, with rising unemployment and budget cuts likely to cause a contraction in the third quarter before the economy starts to gain traction again. “However, the recovery is likely to be more modest than in Germany.”

Germany’s statistics office will publish a detailed breakdown of second-quarter GDP on Aug. 23.

–With assistance from Kristian Siedenburg in Vienna. Editors: Matthew Brockett, Alan Crawford


To contact the reporters on this story: Gabi Thesing in London at [email protected]; Mark Deen in Paris at [email protected]


To contact the editor responsible for this story: Matthew Brockett at [email protected]

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