German economy unexpectedly shrinks in second quarter

FRANKFURT

The German economy unexpectedly shrank in the second quarter, preliminary data showed Tuesday, pouring cold water on hopes of a tentative recovery in Europe's largest economy.

Output contracted slightly by 0.1 percent compared with the previous three months, federal statistics office Destatis said, after expanding by 0.2 percent in the first quarter.

The second-quarter data surprised analysts surveyed by FactSet who had forecast 0.1 percent growth.

The April-to-June period noticeably saw a decline in investments in equipment and construction, Destatis said.

Germany, traditionally a driver of European growth, was the the only major advanced economy to shrink in 2023 as it battled high inflation, a manufacturing slowdown and cooling export demand.

A string of indicators had suggested a recovery was getting under way at the start of the year, but hopes of a strong rebound have been tempered by weaker data in recent weeks.

"Germany is performing very poorly at the moment, especially in comparison with neighbouring European countries where we have seen quite robust growth figures," said LBBW economist Jens-Oliver Niklasch.

"Of course, Germany's export-orientated industry is more exposed to the weakness of the Chinese economy, for example, but many of the problems are homemade," he added.

Meanwhile, the French economy grew faster than expected in the second quarter, official data showed yesterday.

The French government, battling with deepening deficits and a growing debt mountain, has been hoping that stronger growth will make the task of balancing the books easier.

The French economy -- the eurozone's second biggest after Germany -- expanded by 0.3 percent in the second quarter, outperforming the INSEE statistics institute's earlier estimate of 0.1 percent.

Finance Minister Bruno Le Maire welcomed what he said was the French economy's "excellent performance."

France's gross domestic product (GDP) was lifted by foreign trade and a recovery in corporate investment.

Exports rose by 0.6 percent, while imports were stable.

Domestic demand made a small positive contribution to growth while consumer spending, a main driver of first-quarter expansion, was steady. In the month of June alone, however, it dropped by 0.5 percent as households consumed less food and energy

Maxime Darmet, an economist at Allianz Trade, called the headline growth figure "surprisingly good", but also told AFP that domestic demand had been "very weak for three consecutive quarters" which he said was "very disappointing".

INSEE also revised its first-quarter growth estimate to 0.3 percent from a previous 0.2 percent, and added 0.1 points to its fourth quarter 2023 growth figure.