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German Economic Slowdown Clouds Eurozone Crisis Talks


Germany's economic growth slowed sharply in the second quarter, adding to fears that the global economy is slowing down more than expected.

The German economy, Europe's largest, grew by a meager 0.1 percent between April and June, according to newly released figures. The market forecast was that the economy would grow by 0.5 percent during the last quarter.

Oliver Roth, a trader with Close Brothers Seydler, said the data caught markets by surprise and caused European stocks to fall sharply in early trading.

"We are surprised concerning the weak GDP figures of Germany. There were already a couple of investors very much concerned about the economic situation in the world, but everybody was expecting that Germany will have a very good year," Roth said, according to Reuters. "So we are really deeply surprised and concerned about the German GDP figures, and that is what the market shows."

Frankfurt's DAX index lost 2.4 percent, the Cac 40 in Paris lost 2.2 percent, and London's FTSE 100 fell 1.3 percent in early trading following the release of the German figures.

The news also prompted the euro to lose ground against other major currencies, including the U.S. dollar and the Swiss franc.

According to Germany's statistics office, Destatis, a sharp rise in imports in the second quarter had a negative impact on economic growth.

The data shows that Germany's economic growth was slower even than debt-ridden Spain, which expanded by 0.2 percent in the same period.

Europe's second-largest economy, France, announced last week that its economy stagnated in the second quarter, following 0.9 percent growth in the first three months of the year.

The European Union data office shows that economic growth across the 17-nation eurozone slid back to 0.2 percent -- slower than expected -- in the past three months from 0.8 percent in the first quarter of the year 2011.

The economy in another European powerhouse, the Netherlands, also experienced a sharp decline in its growth rate, from 0.8 percent in the first quarter to the same 0.1 percent level as Germany.

Finland, an AAA-rated economy, was a notable exception in the eurozone, reaching 1.2 percent growth compared to 0.4 percent in the first quarter.

The figures were released ahead of a meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel that was expected to focus on how to improve eurozone governance.

Markets, however, did not appear to expect the Franco-German meeting to lead to substantial progress in solving debt troubles in the eurozone.

Germany has said it is strongly opposed to issuing joint European bonds that would allow all eurozone members to borrow at affordable prices, saying the measure would push up borrowing costs for Germany and reduce incentives for weaker eurozone members like Greece to reform their economies.

compiled from agency reports