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German Growth Slowed Less Than Forecast in Second Quarter

The German and French economies slowed less than forecast in the second quarter, fending off a debt crisis that has dragged at least six of their euro-area neighbors into recession.

In Germany, gross domestic product rose 0.3 percent from the first quarter, when it gained 0.5 percent, the Federal Statistics Office in Wiesbaden said today. Economists predicted a 0.2 percent 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 percent decline economists had predicted.

While the euro region’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 are in recession and euro-area GDP dropped 0.2 percent in the three months through June, the European Union’s statistics office in Luxembourg said today.

“For Germany, the outlook remains pretty robust,” said Christian Schulz, an economist at Berenberg Bank in London. “For France, the outlook is less rosy as a number of the components that have prevented it from contracting will be hit by austerity measures, plus the country is losing competitiveness.”

The euro rose after the reports and traded at $1.2357 at 12:20 p.m. in Frankfurt, up 0.2 percent today. European stocks gained, with the Stoxx Europe 600 Index (SXXP) climbing 0.6 percent.

‘Remarkable’ Germany

In Germany, second-quarter expansion was driven by consumption and net trade, with exports rising more than imports, the statistics office said. 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 percent.

“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 percent of all German exports are shipped to euro-zone countries.”

The Italian economy contracted 0.7 percent in the second quarter, extending a recession that started last year, while Spanish GDP fell 0.4 percent. Portugal’s recession deepened, with GDP dropping 1.2 percent for its seventh straight decline.

Aaa Rating

The European Commission forecasts a 0.3 percent contraction for the 17-nation euro economy this year. By contrast, the Bundesbank in June raised its 2012 growth forecast for Germany to 1 percent from 0.6 percent, 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.

German investor confidence unexpectedly fell for a fourth month in August, the ZEW Center for European Economic Research in Mannheim said today.

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 percent from a 4.1 percent estimate in April.

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

Bank of America Corp. this week cut its 2012 economic growth forecast for China to 7.7 percent from 8 percent.

Daimler AG (DAI), the world’s third-largest maker of luxury vehicles, last month reported a 13 percent decline in second- quarter operating profit. Volkswagen AG (VOW), 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 percent, 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.

To contact the reporters on this story: Gabi Thesing in London at gthesing@bloomberg.net; Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net

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