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German economy grows by 0.3 percent in 2nd quarter, cooling slightly

German economy grows by 0.3 percent in 2nd quarter, cooling slightly

German economic growth cooled slightly in the second quarter, with gross domestic product expanding by a disappointing 0.3 percent as construction investment slowed, according to government figures released Tuesday.
The quarter-on-quarter growth compared with expansion in Europe's biggest economy of 0.5 percent in the first three months of this year and 1 percent in last year's final quarter.
The performance was the weakest since the last quarter of 2005, when the economy also grew by 0.3 percent, and was below the 0.4 percent forecast of analysts surveyed by Dow Jones Newswires.
The Federal Statistics Office said second-quarter growth was fueled above all by "very dynamic" exports. It said that "positive growth stimuli" also came from the domestic economy _ but less so than in the past, with construction investment weakening.
"Germany's upswing is not over yet _ but it is taking quite a breather," said Holger Schmieding, Bank of America's chief economist for Europe. "While the outlook for 2008 remains quite positive, the current market jitters and the strong euro exacerbate the risk that growth could disappoint this autumn as well."
The persistent strength of the euro _ which recently has hovered around record highs against the U.S. dollar _ carries the risk of European exports becoming more expensive and less competitive.
Germany has been emerging over the past two years from a lengthy period of economic stagnation that pushed up unemployment and prompted Germans to tighten their purse strings.
On a year-on-year basis, the economy grew by 2.5 percent in the April-June period, following growth of 3.3 percent in the previous quarter, the statistics office said.
On Tuesday, the statistics office revised the full-year growth figure for last year up to 2.9 percent from the 2.8 previously reported _ already the best performance since 2000.
Economy Minister Michael Glos said that "the basic economic dynamism remains intact."
"At this point, we expect no negative influence from the U.S. mortgage crisis on the very robust real economic growth in Germany, so growth can speed up again in the future," Glos said in a statement.
Still, Schmieding said that, over this year's first two quarters, German growth has slowed to an average annualized rate of 1.6 percent. That represents "a clear loss of momentum," he added, although much of that could be attributed to a large increase in value-added tax that took effect in January.
The German government is forecasting growth of 2.3 percent this year.
With surveys still showing high business and consumer confidence, "German GDP growth should accelerate again in the second half of this year," said Alexander Koch, an economist at UniCredit in Munich.
Timo Klein, senior economist for Germany for London-based Global Insight, also said that Tuesday's figures "should not be read as an indication of a beginning slowdown in Germany's economic recovery."
He said the drop in construction investment simply reflected "unusually robust activity" in the first quarter due to the mild winter.
The soft second-quarter data from the euro zone's biggest economies come amid expectations that the European Central Bank will raise interest rates again next month _ continuing a slow but steady campaign of increases.
"The softer German data will not be a major surprise to the Bundesbank and the ECB, which looks likely to stick to its September rate hike plan," Schmieding said. "Still, the clear loss in growth momentum, mirrored in France, Italy and the Netherlands ... makes the ECB decision to pre-announce a September rate hike look premature, to put it mildly."