(Bloomberg) -- Investment and consumer spending weighed on Germany’s economy in the second quarter — dashing hopes that the country can finally leave behind years of stagnation.
The 0.1% contraction in gross domestic product included a 2.2% plunge in capital investment and a 0.2% drop in private consumption, the country’s statistics office said Tuesday. Government expenditure, meanwhile, was up 1%.
While Europe’s biggest economy started the year on a solid footing, it’s struggled to maintain that momentum. Recent indicators have signaled a souring mood among companies, especially in the crucial manufacturing sector.
GERMANY INSIGHT: Gloomy Surveys Expose Stagnation Danger
An expectations index by the Ifo institute slipped for a third month in August, with President Clemens Fuest warning that Germany is “falling into crisis.” Business surveys by S&P Global last week signaled a steeper contraction amid falling factory output.
“With disappointing second-quarter growth and almost all confidence sentiment indicators pointing south, the German economy is currently back where it was a year ago: stuck in stagnation as the growth laggard of the entire euro zone,” ING economist Carsten Brzeski said in an emailed note.
The industrial sector has been suffering from subdued foreign demand, high borrowing costs and increased political uncertainty. An expected consumer recovery on the back of strong wage increases has also failed to materialize so far.
The Bundesbank still sees expansion in the third quarter as rising incomes eventually translate into stronger spending, especially on services. In manufacturing, the situation is expected to remain difficult — pointing to only meager overall growth this year.
“The more manufacturing there is, the weaker you are,” Sharon Bell, senior European equity strategist at Goldman Sachs, told Bloomberg Television’s Guy Johnson. “And that’s where Germany is suffering, whereas Spain is growing just as fast as the US.”
The longer that sector remains under pressure, “the more problematic it will get,” she added.
--With assistance from Jana Randow, Joel Rinneby and Kristian Siedenburg.
(Updates with analyst in last two paragraphs.)
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