Weaker exports dent German growth in Q2

Germany's economy shrank in the second quarter, according to figures released by Destatis on Tuesday, in line with the first estimate and analysts' expectations.

Real gross domestic product fell by 0.1% on the quarter, down from a 0.4% increase in the first quarter of the year, hit by a 1.3% quarter-on-quarter slump in net exports and slowdowns in investment and consumer spending.

The figures showed that household final consumption expenditure increased by 0.1% from the first quarter, while government final consumption expenditure rose by 0.5%.

Meanwhile, the working-day adjusted year-over-year rate fell to 0.4% in Q2 from 0.9% in the previous quarter, also in line with the consensus and first estimate.

Andrew Kenningham, chief Europe economist at Capital Economics, said there is nothing in the detail of the second GDP release to allay fears that the German economy will enter a recession in the third quarter, particularly given the weakness of surveys for July and August and the "fast-deteriorating external backdrop".

He said part of the drop in exports was due to a reversal of stockpiling in the UK ahead of the first Brexit deadline, which could prove temporary. "But we do not expect much of a bounce before the next Brexit deadline, and in any case exports to all key markets have been soft this year."

Kenningham added: "The real concern now is that early indications for Q3 show things getting worse. Although the Composite PMI for August edged up from July, it was still consistent with declining GDP. And the headline Ifo Business Climate Index, published yesterday, fell to a seven-year low while the detail revealed that the services sector is beginning to falter. The chances are that the economy will slip into recession in Q3."