Germany unexpectedly contracts in 2nd quarter

Transition to a green economy, part of which is increasing use of electric vehicles, has cast a shadow on the economy of Germany, which unexpectedly contracted in the second quarter. While the negative growth was slight, 0.1 per cent, it is quite a contrast with 0.3 per cent economic expansion across the Eurozone.

According to a news report, analysts forecast continued stagnation, citing external factors and domestic issues like high energy costs and a transitioning automotive sector. Analysts surveyed by FactSet had earlier estimated 0.1 per cent in the second quarter.

“Germany’s economic growth in the second quarter was as underwhelming as the country’s modest medal tally at the Paris Olympics so far,” said ING analyst Carsten Brzeski.

Statisticians pointed to weak investment as the reason for the second quarter contraction.

"Germany is performing very poorly at the moment, especially in comparison with neighboring European countries where we have seen quite robust growth figures,” said LBBW economist Jens-Oliver Niklasch. “Of course, Germany’s export-oriented industry is more exposed to the weakness of the Chinese economy, for example, but many of the problems are homemade,” he added.

Brzeski said that Tuesday’s figures “confirm that Germany is the growth laggard of the Eurozone.”

“Looking ahead, the German economy will continue to hover between hope and despair,” he said. “With both the US and the Chinese economies losing momentum, along with new trade tensions, there is very little hope for a strong export-driven recovery.”

Although the German Council of Economic Experts has forecast growth of around 0.2 per cent for the year overall, the economy nevertheless faces a number of other headwinds like a shortage of skilled labor, high energy prices, and an automotive industry that is racing to adapt to electric mobility.